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Best Buy (BBY)

BBY

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Best Buy (BBY) was recently downgraded from Neutral to Underperform. The downgrade comes following dismal second quarter 2013 results. The quarterly earnings of $0.20 per share fell 49% from year ago levels and missed the Zacks Consensus Estimate of $0.31. Total revenue also declined 2.8% to $10,547 million during the quarter. Comparable-store sales fell 3.2%, reflecting decline of 1.6% at Domestic segment and 8.2% at International division.

Best Buy is a multinational specialty retailer of consumer electronics, home office products, entertainment software, appliances and related services. The company is facing mounting pressure from online services that are able to offer products at lower costs. The founder of the company, who owns approximately 20% of the stock, is looking to take the company private with the help of private equity groups.

We recently downgraded our long term recommendation on the stock to Underperform from Neutral following the company's dismal second-quarter 2013 results. Over the last five years, Best Buy's shares have traded in a wide range of 4.3X to 17.4X trailing 12-month earnings. Our target price of $16.00 equates to a 4.6x multiple 2013 EPS.

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