[video] Is Best Buy's Stock Now a Buy? (Update 2)

TheStreet.com

Updated from 11:02am EST to include commentary from TheStreet's Rocco Pendola and stock price changes.

NEW YORK (TheStreet) -- Best Buy  announced disappointing quarter-to-date sales on Thursday, and said that the highly promotional landscape this holiday season cut into profit. Shares plummeted 30% as investors exited the stock.

So now that the carnage is over, does Thursday's stunning share drop in Best Buy's stock present a buying opportunity? At least two analysts say no.

UBS analyst Michael Lasser cut his rating on Best Buy to "neutral" from "buy" and slashed his 12-month price target by $19 to $29. Goldman Sachs analyst Matthew Fassler took Best Buy off of Goldman's "Americas Buy List" and also downgraded the stock to a "neutral" rating. He cut his price target by $17 to $28.

Best Buy shares closed down 9% to $24.41 on Friday, a level not seen since April 2013.

Best Buy said comparable store sales for the first nine weeks of the quarter fell 0.9% for its roughly 1,500 U.S. stores. Total revenue, which includes international business, fell 2.5% $11.5 billion. Competing on price to win customers ultimately hit Best Buy's margin. The company revised its forecast for operating margin saying it would now be 175-185 bps lower than last year's fourth-quarter margin.

Best Buy is in the middle of a turnaround, under its Renew Blue cost-cutting initiative. The company said it will "more quickly and more deeply" lower its cost structure and look to grow its online channel at an "accelerated pace" as well as improve its multi-channel customer experience and reinvigorate and expand its Geek Squad services business.

"While there were clearly negative exogenous factors that prevailed across retail such as a challenging overall spending environment and uncooperative weather, we think BBY's financial performance should have received more help than it did from the strong gaming launches, its price investments, and its advantageous vendor relationships," Lasser wrote in a research note.

"We think the story has changed," Lasser wrote further. "The results from the last couple of months illustrate the vulnerabilities of the model. While these risks had been overshadowed by the prudent actions that the company was taking, we think they will come back to the forefront. It will take some time before the market will be able to predict if the holiday experience was one-off or if it's more long-lasting. The stock could bounce after this shakes out, but we think shares will probably remain bound in the mid-to high $20 range."

Lasser noted the silver lining from the holiday season -- the cost-cutting acceleration combined with the revenue-generating opportunities will be closely watched by competitors like Amazon and Wal-Mart .

"We think part of the reason why the promotional environment was so tight was that other players like WMT and AMZN saw the progress that BBY was making in categories TVs and tablets and it motivated them to respond in kind over the holidays," Lasser wrote.

Goldman analyst Fassler also took a more "guarded view" on Best Buy.

Best Buy was added to Goldman's Buy List on July 3, 2013. Since then the stock has fallen 9% vs. a positive 14% return for the S&P 500, according to Fassler.

"We now expect BBY to trade at multiples characteristic of secularly challenged retailers, after having broken that mold for a time in 2H 2013, given the challenging realities of selling big-ticket commodities in a price transparent environment, hammered home by its 4Q showing," Fassler wrote in a research note. "The likely diminished contribution of highly profitable wireless growth and the cycling of Vizio as a key driver of TV share gains impair our confidence as we look forward."

"Management spoke to incremental cost cutting opportunities on its call, but we think the firm will be challenged to deliver superior customer experiences while slashing its cost structure," the note said. "We believe management has made smart decisions here, and is coping valiantly with tough positioning. Also, we realize that holiday is a bad time to judge the efficacy of emerging initiatives, so we model a much better showing in upcoming quarters."

Fassler cut his earnings forecasts by 62 cents to $1.01 a share for the fourth quarter and by 63 cents to $1.83 for the full year. For 2014, he cut forecasts by 61 cents to $2.35 per share.

TheStreet's Rocco Pendola disagrees with Best Buy analysts who are still relatively bullish, using Lasser's comment "We think the story has changed," as a prime example of how sell-side analysts confuse positive stock performance with their handle on a company's underlying story:

"Lasser and his other bullish colleagues got BBY right in 2013. But they were riding momentum. I'd like to think they're smart enough to realize this. That they know they weren't touting an investment in a solid company. They were just, partially as a result of their own collective day-after-day pumping, going with what was hot." - TheStreet's Rocco Pendola

Bank of America analyst Denise Chai upgraded the stock to "buy" on Friday.

"We view these problems are short-term in nature and at current levels, BBY still offers opportunity to investors who are willing to look through near-term weakness," Chai wrote in a note.

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Written by Laurie Kulikowski in New York.

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