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Best Buy (BBY) Up 34% This year, Can the Bull Run Continue?

Zacks Equity Research

The year 2017 has turned out to be a stupendous one for Retail-Consumer Electronic industry. The industry not only has surged 31.2% year to date, but has also outperformed the S&P 500 gain of 13.6%. Moreover, it also occupies top 6% (16 out of 265) position among the Zacks classified industries. Stocks such as Best Buy Co., Inc. BBY, Conn's, Inc. CONNand Aaron's, Inc. AAN have witnessed a gain of 34%, 109% and 37.2%, respectively. Today we will focus on Best Buy and try to analyze the catalysts that may help the stock to sustain its momentum going forward.

Strategic Endeavors Well on Track

Best Buy has exhibited a bullish run in the index owing to strategic efforts, sturdy online sales growth and solid earnings history. The company is making extensive investments to upgrade operations with special focus on developing omni-channel capabilities and strengthening partnership with vendors.

The company’s Renew Blue program, which was announced in November 2012 aided it to overcome two major problems, “negative comparable sales and declining operating income rate”. The strategy helped the company to deliver compounded annual adjusted earnings growth rate of 8% in the past five years. Best Buy, which has generated cost savings of $1.4 billion in the past five years, continues to expect an additional annualized cost reduction of $600 million by 2021. These efforts have helped the stock to register a whopping gain of 223.7% in the past five years, outpacing the industry's increase of 129.9%.

Following the successful completion of “Renew Blue” program, the company launched a fresh strategy called “Best Buy 2020: Building the New Blue”. In an effort to drive growth, the company is focused on expansion of multi-channel retail business, offering services and solutions that solve customer need. Moreover, it is concentrating on accelerating growth in Canada and Mexico. The company intends to establish itself as a smart home market leader by rolling out the Best Buy Smart Home Powered by Vivint home automation and security by October end.

Above Initiatives Lead to Buoyant Outlook  

Best Buy expects fiscal 2021 adjusted earnings per share in the range of $4.75-$5.00, which demonstrates a compounded annual growth rate of 8-9% from fiscal 2017. Meanwhile, the company anticipates enterprise revenues of $43 billion for fiscal 2021 compared with the fiscal 2017 revenues of $39.4 billion.

Following better-than expected third-quarter fiscal 2018 results, the company raised fiscal 2018 guidance. For the fiscal year, management forecasts Enterprise revenues (including 53rd week) growth of 4%, up from the prior guidance of 2.5%. The company anticipates adjusted operating income (including 53rd week) growth rate in the range of 4-9%, up from the earlier guided range of 3.5-8.5%. For third-quarter fiscal 2018, management projects Enterprise revenues between $9.3 billion and $9.4 billion, and comparable sales increase of 4.5-5.5%. Management envisions adjusted earnings in the range of 75-80 cents a share.

Wrapping Up

Best Buy, which shares space with GameStop Corp. GME is leaving no stone unturned to attract consumers and attain incremental revenues. Keeping in mind strong fundamental and robust view, we believe this Zacks Rank #2 (Buy) stock will continue to build momentum going forward. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Aaron's, Inc. (AAN) : Free Stock Analysis Report
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Conn's, Inc. (CONN) : Free Stock Analysis Report
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