Best Buy Downgraded

We recently downgraded our rating on Best Buy Company Inc. (BBY - Analyst Report) to Neutral from Outperform with a target price of $41.00.
 
Consumers, grappling with the recent downturn and lower disposable income, are now prioritizing their purchases. Best Buy sells products that are more discretionary in nature. We expect moderate sales growth for a few years.
 
The company also hinted that its fourth-quarter 2010 domestic gross margin will be lower than anticipated. Further we notice that Best Buy’s international comparable-store sales have been falling.
 
However, Best Buy’s dominant position in the consumer electronic business enables it to sustain growth in the top-line, expand store base, and boost market share. Despite the economic downturn, the company was able to increase its market share both domestically (up 2.3%) and internationally in third-quarter 2010.
 
Another factor driving growth is Best Buy’s customer-centric operating model. The stores tailor their store merchandising, staffing, marketing and presentation to meet the distinct needs of targeted customers. The company’s wide array of assortments, store formats and brand marketing strategies provide an edge over competitors.
 
Best Buy is a multinational specialty retailer of consumer electronics, home office products, entertainment software, appliances and related services. The company operates retail stores and websites under the brand names Best Buy, The Carphone Warehouse, Five Star, Future Shop, Geek Squad, Magnolia Audio Video, Napster, Pacific Sales, The Phone House and Speakeasy.
 

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