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Bull of the Day: Best Buy (BBY)

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It has been a challenging environment for most retailers as more and more shoppers now prefer to shop online. Amazon now accounts for more than half of every new dollar spent online in America and few retailers are able to compete with the e-commerce giant. Best Buy is one of those few retailers. The electronics giant continues to beat estimates, quarter after quarter, and shares continue to rise.

About the Company

Headquartered in Richfield, MN, Best Buy (BBY - Free Report) is a leading specialty retailer of technology products, services and solutions, with approximately 1,600 stores in North America. Domestic Operations accounted for 92% of FY17 total revenue.

According to the company, 70% of the U.S. population lives within 15 minutes of a Best Buy store. That has helped the retailer to improve its e-commerce operations as shoppers can purchase online and pick up from a nearby Best Buy store, within two days in most cases.

Strong Q1 Results and Upgraded Guidance

The retailer reported on May 25.  Adjusted earnings came in at $0.60 per share handily beating the Zacks Conesus Estimate of $0.40.

Revenues were $8,528 million, ahead of the Zacks Consensus Estimate of $8,264 million. Strong performance of gaming and mobile drove the results higher. Online sales were up 23%.

“Compared to our expectations going into the quarter, our revenue was higher due to strong performance in gaming, a better-than-expected result in mobile, and the improvement of overall sales trends due to the arrival of delayed federal tax refund checks,” said the CEO.

After better-than-expected results, the retailer raised their guidance for the year. They now expect revenue to grow by 2.5%, up from its previous guidance of 1.5%.

Shares surged 21% after results, reaching their all-time high.

Returning Capital to Shareholders

Best Buy continues to boost shareholders’ value through dividends and share repurchases. In March, they announced a new $3 billion share repurchase plan expected to be completed over the next two years as well as a 21% increase in the quarterly dividend to $0.34 per share. During the reported quarter, they returned approximately $478 million via share repurchases and dividends.

Rising Estimates

Zacks Consensus Estimates for current and next fiscal years have surged to $3.87 per share and $4.14 per share respectively, up from $3.71 and $3.99, before the results.The company has missed only once in the past twenty quarters. Their average quarterly beat for the last four quarters was 34%.


The Bottom Line

Certain shopping experiences are possible only in physical stores and cannot be replicated online. If Best Buy continues to provide excellent shopping experience and prevent shoppers from buying on Amazon by matching their prices, they will likely continue their winning streak.

In addition to a top Zacks Rank of #1 (Strong Buy), the stock has a VGM Score of “A”. Further, it has a juicy dividend yield of 2.4%.

“Retail – Consumer Electronics” industry is also hot, currently ranked 2 out of 265 Zacks Industries (top 9%).

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