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Best Buy shares fall after weak earnings

NEW YORK (AP) -- Shares Best Buy fell Wednesday, as two ratings agencies downgraded its credit ratings the day after the struggling electronics chain reported a weaker-than-expected third quarter, hurt by restructuring charges and slumping sales.

THE SPARK: On Tuesday, Minneapolis-based Best Buy Co. reported a net loss for the three months ended Nov. 3, and adjusted income of 3 cents per share, well below analyst expectations. It revenue fell 4 percent to $10.75 billion.

On Wednesday, Fitch Ratings downgraded its issuer default rating by two notches to "BB-" from "BB+." A "BB-" rating is below investment grade, or "junk."

Standard & Poor's Ratings Services lowered its ratings on Best Buy as well, saying the retailer's weak performance will likely continue because of fierce competition and continued margin pressure. It dropped the company's corporate credit and senior unsecured debt ratings one notch in junk-grade territory to "BB" from "BB+". There is a negative outlook, which means it could drop further in the future.

THE BIG PICTURE: The electronics chain is trying to reverse a yearslong decline in its business as competition from online stores and discounters increases, and consumers' tastes shift from more profitable items like TVs and desktop computers toward less profitable smartphones and tablets.

ANALYSIS: Wedbush analyst Michael Pachter kept his "Underperform" rating on the stock and trimmed his price target on the stock to $9 from $14.50. In a note to investors he said Best Buy's business model is unlikely to rebound. The company has been unable to stop sales declines, he said, and it remains at a disadvantage to its lower-price and lower-cost rivals.

But Janney Capital Markets analyst David Strasser was more positive. He said there's a solid possibility that co-founder and former Chairman Richard Schulze might make a definitive bid for the company, although it might be at a lower price than previously expected. He added that he doesn't think Best Buy's woes will push them into a "death spiral," which is what is factored into the share price.

Competing rating agency Moody's Investors Services said that the Best Buy's third-quarter would not have any immediate impact on its investment-grade "Baa2" rating or developing outlook.

SHARE ACTION: Shares fell 39 cents, or 3.3 percent, to close at $11.57. It was the sixth straight day of declines for the stock. Earlier shares hit $11.41, the lowest price since August 1998.