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Bull of the Day: Best Buy (BBY)

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Headquartered in Richfield, MN, Best Buy Co. (BBY - Free Report) is a specialty retailer that offers a wide selection of consumer electronics, home office products, entertainment software, home appliances, cell phones, and even health and wellness products. The company has two key segments, Domestic Operations and International Operations, and does business throughout the U.S., Canada, and Mexico.

Q1 Earnings Recap

When Best Buy released its first quarter report last month, investors and Wall Street were expecting big results, and the retail chain more than delivered.

Sales for the period spiked 37% to $11.6 billion compared to $8.6 billion in the year ago quarter and $9.1 billion in Q1 2019. Best Buy’s top line continued to benefit from an almost perfect selling environment: cash rich customers focused on upgrading their home.

Even more impressively, U.S. sales jumped 38%.

Profit margins increased as well, but rising costs in fulfillment and labor weighed on its bottom line a bit. Non-GAAP diluted EPS came to $2.23 per share, and operating margin rose to 2.2% of sales.

“The year has clearly started out much stronger than we originally expected [and] sales momentum is continuing into Q2,” said CFO Matt Bilunas.

Can BBY Surge Higher?

Best Buy Co., Inc. Price and Consensus

Year-to-date, shares of BBY have been a little volatile, up about 11% compared to the S&P 500’s 16.3% increase. Earnings estimates have been rising too, and BBY is a Zacks Rank #1 (Strong Buy) right now.

For fiscal 2022, 10 analysts have revised their bottom-line estimate upwards in the last 60 days, and the Zacks Consensus Estimate has moved up $1.24 to $8.53 per share for the same time period. Earnings are expected to grow about 7.8% compared to last year. Fiscal 2023 looks strong too.

Looking ahead, comparable sales are expected to rise between 3% and 6% for 2022 compared to the 1% increase the company had originally forecasted. Comparisons will be tough for Best Buy (and many other retailers) as the economic reopening accelerates; management is also concerned that consumers may spend less on home tech purchases in favor of more travel and dining out.

But, the overall sentiment on BBY is bullish, and investors can take comfort in the company’s attractive valuation—shares only trade at 12.7X forward earnings—as well as its solid 2.6% dividend yield.

If you’re an investor searching for a retail stock to add to your portfolio, make sure to keep BBY on your shortlist.


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