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Can Best Buy (BBY) Rally Even Higher Post a 52-Week High?

Zacks Equity Research

Best Buy Co., Inc. BBY has been progressing well with its solid strategic endeavors, store-in-a-store concept and Building the New Blue Strategy. Also, it has an impressive earnings surprise history.

Shares of the company scaled a 52-week high of $74.63 yesterday, before closing a tad lower at $74.26. Also, this Richfield, MN-based company’s shares rallied 8.5% year to date.

In a year’s time, the stock has surged a whopping 74.5%, substantially outperforming both the Retail/Wholesale sector’s gain of 37.4% and the S&P 500’s growth of 26.9%. We believe that the stock still has upside potential as apparent from a VGM Score of A and long-term earnings growth rate of 13.3%.



Growth Catalysts

Best Buy’s extensive investments to upgrade operations with special focus on developing omni-channel capabilities and strengthening partnership with vendors have been encouraging. Moreover, the company seems to be smoothly progressing with the Best Buy 2020: Building the New Blue strategy, which is aimed at exploring and pursuing growth opportunities, better execution in key areas, cost optimization and investing in people as well as systems to drive growth, implementation and efficiencies.

Management is focused on expansion of multi-channel retail business, offering services and solutions that solve customer need, alongside accelerating growth in Canada and Mexico. We believe that the store-in-a-store concept has been working well for Best Buy with respect to attracting consumers and attaining incremental revenues.

Impressive Surprise History & Estimates

Best Buy’s earnings have outpaced the Zacks Consensus Estimate for 19 straight quarters except in third-quarter fiscal 2018. Also, the company has delivered an average positive earnings surprise of 18.9% in the trailing four quarters. It has surpassed sales estimates in five of the last seven quarters as well.

Furthermore, analysts are steadily growing bullish on the stock. This is apparent from rise in earnings estimates. The Zacks Consensus Estimate of $4.01 for fiscal 2018 and $4.26 for fiscal 2019 has moved north by a penny and 25 cents, respectively, in the last 30 days. The estimate of $2.00 for the fourth quarter of fiscal 2018 has also inched up by a penny in the same time frame. Management projects fourth-quarter adjusted earnings in the band of $1.89-$1.99 per share.

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

Best Buy Vs Industry



Bottom Line

Though Best Buy remains well on track with its robust growth strategies, analysts believe that higher investments might strain its margins in the quarters ahead. Management intends to spend approximately $750-$800 million in fiscal 2018, up from the previous estimate of $700 million.

Best Buy carries a Zacks Rank #3 (Hold).

Looking For Solid Retail Stocks, Check These

Some better-ranked stocks in the broader Retail space include Zumiez Inc. ZUMZ, American Eagle Outfitters, Inc. AEO and Aaron's, Inc. AAN. While Zumiez and American Eagle sport a Zacks Rank #1 (Strong Buy), Aaron's carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez with a long-term earnings growth rate of 18% has pulled off an average positive earnings surprise of 22.2% in the last four quarters.

American Eagle with a long-term earnings growth rate of 7.5% has delivered an average positive earnings surprise of 22.2% in the trailing four quarters.

Aaron's has delivered an average positive earnings surprise of 7.3% in the trailing four quarters.

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