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On Jan 16, we upgraded consumer electronics retailer, Best Buy Company Inc. (BBY - Analyst Report) to Neutral from Underperform based on its holiday sales performance that showed signs of improvement. Moreover, Best Buy became a Zacks Rank #3 (Hold) stock shortly after reporting its holiday sales numbers.

Why the Upgrade?

Best Buy’s holiday sales were not as bad as expected with total revenue coming in at $12.8 billion, marginally down from $12.9 billion in the comparable prior-year period.

The highlight of the period was the company’s domestic comparable-store sales (comps) results, which seem to be stabilizing with comps remaining flat during the key holiday season. The company’s strategic initiatives, including its price match policy, multi channel strategy, lucrative assortments and employee training facilitated the company to come up with improved results.

Further, sturdy online sales performance remains a positive for the company. During the 9 weeks period ended Jan 5, 2013, Domestic segment’s online channel revenue jumped 10% to $1.1 billion, reflecting strong traffic.

However, secular headwinds and falling comps in key categories including televisions, gaming, notebooks and digital imaging remain looming concerns. Additionally, Best Buy remains cash strapped with cash plunging 85.1% year over year to $309 million at the end of the last reported quarter.

Moreover, intensifying competition from online retailers like Inc. (AMZN - Analyst Report), is adversely affecting its sales and profitability as online retailers are gradually encompassing new merchandise categories under their purview and offering lucrative discounts on products with free shipping services to attract customers.

Other Stocks to Consider

Until any further upward revision in Best Buy’s rating, other consumer electronics retailers worth considering include Conns Inc. (CONN - Snapshot Report) and RadioShack Corp. (RSH - Analyst Report), which hold a Zacks Rank #1 (Strong Buy) and a Zacks Rank #2 (Buy), respectively.

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