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Best Buy (BBY) Up 15% in 3 Months: Will the Momentum Sustain?

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Best Buy Co., Inc.’s (BBY - Free Report) extensive investments to upgrade operations, with special focus on developing omni-channel capabilities, supply chain and cost-reduction opportunities, along with strengthening partnership with vendors bode well. The company’s “Best Buy 2020: Building the New Blue” program aims to explore growth opportunities and optimize costs. These efforts have helped the stock outpace its industry in the past three months and continue posting upbeat results.

The company, which shares space with GameStop Corp. (GME - Free Report) , has exhibited a bullish run in the index compared with the industry. In the said time frame, the stock has surged roughly 15.8%, while the industry has gained 13.5%. In an effort to drive growth, the company is focused on expansion of multi-channel retail business, offering services and solutions that solve customers’ needs.

On the other hand, analysts believe Best Buy's investment activities to boost e-commerce operations and supply chains in order to counter competition may strain margins to an extent. We also note that SG&A expenses escalated 18.6%, 2.2% and 3.2% in the fourth, third and second quarter of fiscal 2018, respectively. In the first quarter of fiscal 2019, the same rose 6.3%.

 

Management hinted that higher investments in supply chain and increased transportation costs will likely weigh upon gross profit of the Domestic business by approximately 25 bps in the second quarter.

Nevertheless, Best Buy’s upbeat first-quarter fiscal 2019 performance and second-quarter guidance infuses optimism. Management estimates Enterprise revenues between $9.1 billion and $9.2 billion, and comparable sales increase of 3-4%. The company projects adjusted earnings in the band of 77-82 cents a share, reflecting an increase of 12-19% year over year.

Also, this Zacks Rank #3 (Hold) company expects domestic comparable sales growth of 3-4%, while international comparable sales estimated in the band of 1-4%. Calendar shift is likely to benefit domestic comparable sales by roughly 150 basis points.

2 Retail Stocks Hogging the Limelight

Urban Outfitters (URBN - Free Report) delivered an average positive earnings surprise of 19.8% in the trailing four quarters. The has a long-term earnings growth rate of 12% and carries a Zacks rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fossil Group (FOSL - Free Report) delivered an average positive earnings surprise of 54.1% in the trailing four quarters. The Zacks Rank #2 (Buy) company has a long-term earnings growth rate of 5%.

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