Buy BBY Stock Before Earnings Amid Strong Retail Results?
The first quarter earnings season has been impressive, from technology titans such as Apple AAPL all the way to the recent reports from Target TGT and other big retailers. Best Buy BBY benefitted from the coronavirus-forced remote schooling and work push. But the strong showing might put pressure on the consumer electronics retailer in 2021.
Let’s look at BBY ahead of its Q1 FY22 financial release before the opening bell on Thursday, May 27 to see if investors might want to buy the stock.
Tech Retail Growth
Best Buy sells smartphones, TVs, connected-appliances, and nearly every other consumer electronics device under the sun. The firm benefitted from remote work and school, as people were forced to purchase laptops, tablets, and more to adapt.
The coronavirus aside, tech devices and the broader consumer electronics space will grow for years in our digital and device-heavy world. BBY, like every other retailer, has spent the last several years working to improve its digital commerce offerings in order to succeed long-term in an age where millions of shoppers crave the convenience Amazon AMZN helped popularize and normalize.
Best Buy’s revenue climbed by 8.3% last year for its best top-line expansion in ten years. Meanwhile, its adjusted earnings jumped 30%. The company’s online sales helped drive its growth last year, with domestic comparable online sales up 144%.
Executives said that online sales made up about 43% of total Q4 revenue. “Our stores played a pivotal role in the fulfillment of these sales, as almost two-thirds of our online revenue was either picked up in store or curbside, shipped from a store or delivered by a store employee,” CEO Corie Barry said in prepared remarks.
More recently, BBY joined Walmart WMT and other retailers in the subscription services space. Best Buy announced on April 7 that it’s piloting a new membership program, called Best Buy Beta. The $199.99 a year service includes “exclusive member pricing, unlimited Geek Squad technical support, up to two years of protection on most product purchases, free standard shipping and delivery, and free installation on most products and appliances,” as well as some other perks.
What’s Next?
Best Buy said last quarter it expects online sales to account for approximately 40% of total domestic sales this year. The company also announced plans to buy back “at least $2 billion” in stock. Peeking ahead, Zacks estimates call for its adjusted Q1 FY22 earnings to soar 103% to $1.36 a share on 21% higher sales.
These projections come up against an easier to compare period, given BBY’s fiscal year ended on January 30 and its first quarter will include the three-month period ended near May 1. With this in mind, Best Buy’s adjusted fiscal 2022 (current year) EPS is projected to slip 6.3% on 1% lower revenue.
BBY does boast a solid history of quarterly earnings beats, including big beats in the first three quarters last year. And it has seen its earnings outlook turn more positive recently.
Bottom Line
Best Buy has soared 310% over the last five years to easily top Walmart, Target, and the S&P 500. BBY is also up 50% in the last year and 15% in 2021 to continue its outperformance. BBY closed regular hours Tuesday at $114.42 a share, which puts it about 10% below its records. The recent pullback has also pushed it under neutral RSI levels at 43.
Despite this growth and outperformance, BBY trades at a significant discount against some of its competitors at 14.9X forward 12-month earnings and its industry’s 28.8X average. This also marks value compared to its own year-long median. Furthermore, Best Buy’s 2.44% dividend yield crushes the S&P 500, the 10-year Treasury’s 1.56%, and Walmart’s 1.55%.
Best Buy’s earnings revision activity helps it land a Zacks Rank #3 (Hold) at the moment, alongside “A” grades for Growth, Value, and Momentum in our Style Scores system. All of this means some investors might want to consider BBY as a solid retailer to add to their longer-term portfolios.
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