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Analyst resumes coverage of Best Buy

NEW YORK (AP) -- A Credit Suisse analyst resumed his coverage of Best Buy on Monday and lifted the electronics chain's prior price target as it continues to work on a turnaround plan.

THE SPARK: Gary Balter resumed his coverage of Best Buy Co. with an "Outperform" rating. He increased the company's price target to $40 from its previous $32.

THE BACKGROUND: Best Buy has been working on a turnaround plan as it faces increased competition from online retailers and discount stores. The plan includes closing stores, cutting costs and investing in training for its employees. In April it also said it would sell its 50 percent stake in its European joint venture to streamline its business and strengthen its balance sheet.

In June, Microsoft Corp. revealed plans for "store-within-a-store" sections in Best Buy stores. The Microsoft mini-stores are expected to be set up in about 600 Best Buy locations in the U.S. and Canada by early September. Best Buy has similar store-within-stores for Apple, Samsung and Magnolia products.

THE ANALYSIS: Balter said in a client note that Best Buy has taken a new approach to serving and partnering with customers and has managed to turn its store base from a liability to an offensive weapon.

Balter views the deal with Microsoft and others as a sign that these companies are acknowledging that they need a brick-and-mortar presence to promote their products. He's also pleased that Best Buy is redoing its online business, updating the search engine, product placement, store pickup service, pricing and other areas. The analyst anticipates that the retailer will eventually have better online pricing in place and will implement measures to make its website more interactive for shoppers.

A representative for Best Buy did not immediately respond to an email seeking comment.

SHARE ACTION: Best Buy's stock climbed $2.28, or 8.4 percent, to $29.62 in afternoon trading. Earlier in the session the shares hit $29.72, their highest level in a little more than a year. Year-to-date, the share have more than doubled.