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Best Buy (BBY) on Fire: What is Driving the Stock Higher?

PLCE BBY DPZ BURL

Trades from $3

Is Best Buy Co., Inc. (BBY - Free Report) part of your portfolio? If not, this is the right time to add the stock as it looks very promising. Further, the underlying factors are capable of carrying the momentum further. The stock sports a Zacks Rank #1 (Strong Buy) and has a long-term earnings growth rate of 11.4%, which highlights its inherent strength. Moreover, the stock price has surged roughly 54% in the past six months. We believe that Best Buy offers a sound investment opportunity, as evident from its VGM Score of “A”.

The Zacks Consensus Estimate has witnessed an uptrend over the past 30 days as analysts raised their estimates. Analysts polled by Zacks are convinced about the stock’s upbeat performance. Over the said time frame, the Zacks Consensus Estimate of $3.27 and $3.42 for fiscal 2017 and fiscal 2018 has increased 7.6% and 7.2%, respectively.

Robust Quarterly Numbers

Best Buy has consistently posted better-than-expected bottom-line results in the last 16 quarters. In the trailing four quarters, the company’s earnings outperformed the Zacks Consensus Estimate by an average 21%. The company posted earnings per share of 62 cents in third-quarter fiscal 2017, beating the Zacks Consensus Estimate of 47 cents and surging 51.2% year over year. Revenues of $8,945 million surpassed the Zacks Consensus Estimate of $8,841 million and increased 1.4% year over year. Comparable-store sales (comps) were up 1.8%, compared to a rise of 0.8% in the prior-year period.

The company’s results were driven by robust performance of both the domestic and international businesses. The company reported a 24.1% increase in online comparable sales on the back of improved traffic, conversion rates and higher average order values. Moreover, management provided an upbeat earnings outlook for the fourth quarter. The company projects earnings in the range of $1.62–$1.67 per share compared with $1.53 in the prior-year quarter.

BEST BUY Price, Consensus and EPS Surprise

 

BEST BUY Price, Consensus and EPS Surprise | BEST BUY Quote

Hidden Catalysts

Owing to a shift in consumer buying behavior, retailers find the store-in-a-store concept more viable and profitable to reach their target group. We believe that the strategy seems compelling to most retailers and is often considered a game changer as it facilitates the display of different brands under one roof and ensures a larger footfall. Best Buy is leaving no stone unturned to attract consumers and attain incremental revenues, as is evident from its strategic action of opening "Samsung Experience Shops" within its stores. Taking the initiative a step further, Best Buy also rolled out “LG Store” across 376 of its outlets in second-quarter fiscal 2017. The company has increased the AT&T and Verizon stores within stores to 426 from 247 at the end of prior year.

Best Buy’s “Renew Blue” program achieved tremendous success in fiscal 2016. Under the phase two of the plan, which commenced in fiscal 2016, the company intends to improve annualized operating income by $400 million over the next three years. The company has already reached the $300 million mark.

Stocks to Consider

Stocks which warrant a look in the retail sector include Burlington Stores, Inc. (BURL - Free Report) , The Children's Place, Inc. (PLCE - Free Report) and Domino's Pizza, Inc. (DPZ - Free Report) , all flaunting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores delivered an average positive earnings surprise of 25.6% in the trailing four quarters and has a long-term earnings growth rate of 17%.

The Children's Place delivered an average positive earnings surprise of 36.3% in the trailing four quarters and has a long-term earnings growth rate of 10.3%.

Domino's Pizza delivered an average positive earnings surprise of 1.4% in the trailing four quarters and has a long-term earnings growth rate of 16.8%.

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