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Best Buy is almost out of crummy competitors to make it look good

Sam Ro
Managing Editor
Best Buy has been scrambling to keep sales. (Image: Wikimedia Commons)

Like many other chains in the brick-and-mortar space, Best Buy (BBY) has been struggling to compete with online retailers like Amazon.

However, this shift in retail hasn't been all bad news for Best Buy. With competitors like Sears cutting back and Radio Shack going belly-up, Best Buy has experienced a sales boost as it has been gaining some market share. In other words, Best Buy is getting a bigger slice of a shrinking pie.

Unfortunately, those gains in comparable store sales, or comps, will be short-lived, says Credit Suisse's Seth Sigman.

"Best Buy is lapping market share benefits from Sears Holdings (SHLD), Radio Shack (RSH), hhgregg (HGG) among others, that may become less incremental through this year and next," Sigman wrote.

"Our math suggests that if BBY just took 10% of their declines (using their declines in excess of the market growth rate), that would have added 0.3% to comps in 2014 (of the 1.0% comps reported), and 0.8% in 2015 (of the 0.5% comp reported)," Sigman added. "Assuming a 20% share, a more reasonable market share estimate for BBY in the [consumer electronics] category, that would imply a 0.4% and 1.5% comps benefit in 2014 and 2015 respectively. That's not to say the market share gains won't continue, but we do believe there were some unique events in 2015 with SHLD significantly reducing its [consumer electronics] focus and RSH liquidating."

Sigman lowered his rating on Best Buy from outperform to neutral. He also slashed his price target to $31 from $36.50. In his downgrade note, he also warned that the upgrade cycle for Apple iPhones could disappoint this year.

BBY is trading at around $28.60, down 2% from Tuesday's close.

Sam Ro is managing editor at Yahoo Finance.

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