What To Expect From Best Buy’s Stock Post Q4 Release?

by Trefis Team
Best Buy
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Best Buy (NYSE: BBY), a specialty retailer of consumer electronics, home-office products, entertainment software, appliances, and related services, is scheduled to report its fiscal fourth-quarter results on Thursday, February 25. We expect the retailer’s earnings to likely beat the expectations and revenues to be in line. Best Buy benefited from people transitioning to working from home earlier during the pandemic with the growth in sales of products such as batteries, PCs, laptops, LCDs, printers, and refrigerators. Consequently, Best Buy was also able to drive consumers to purchase electronics online without losing customers to Amazon in both fiscal Q2 and Q3. Going forward, we expect Best Buy to continue to leverage this boost from work from home and virtual school trends. In addition, a socially distanced winter will likely continue the increased demand for entertainment tech such as TV and gaming consoles in Q4. That said, the servicing of electronics will also grow, setting up Best Buy’s Geek Squad services for more business down the road. It should be noted that the company is currently in fiscal 2021 (year ending January 2021).

Our forecast indicates that Best Buy’s valuation is $120 a share, which is 4% higher than the current market price. Look at our interactive dashboard analysis on Best Buy’s Pre-Earnings: What To Expect in Q3? for more details.

(1) Revenues expected to be in line with consensus estimates

Trefis estimates Best Buy’s Q4 2021 revenues to be around $17.2 Bil, in line with consensus estimate. In the first nine months of fiscal 2021, Best Buy’s revenue grew 7% year-over-year (y-o-y) to over $30 billion, an 8.1% increase in comparable sales, even with lower advertising spend and a much smaller workforce. Notably, the consumer electronics retailer’s revenue grew 21% y-o-y in Q3. In fact, its comp sales increased 23% y-o-y (compared to only a 1.7% comp sales increase in Q3 FY 2020). To add to this, the company sales also pivoted towards online sales as domestic online revenue increased 174% y-o-y to around $4 billion in Q3. This was over 35% of total sales, compared to around 16% in the year prior.

2) EPS likely to be marginally ahead of consensus estimates

Best Buy’s Q4 2021 earnings per share (EPS) are expected to be $3.47 per Trefis analysis, marginally above the consensus estimate of $3.42. While the retailer saw incremental Covid expenses so far this year due to special bonuses to hourly employees, higher wages in fulfillment centers, and an exponential increase in digital sales during the quarter, its stronger revenue growth helped to offset those expenses. Even after enduring forced closures for much of the year, the company managed to increase its net income by 23% for the first nine months of the fiscal year.

For the full-year, we expect Best Buy’s adjusted net margin to grow from 3.7% in fiscal 2020 to 4.3% in fiscal 2021. This coupled with a 5% y-o-y growth in Best Buy’s revenues, could lead to a rise of $300 million y-o-y in adjusted net income to $1.9 billion in FY 2021. All this, resulting in a possible adjusted EPS increase from $6.04 in FY 2020 to around $7.24 in FY 2021.

(3) Stock price estimate marginally higher than the current market price

Going by our Best Buy’s Valuation, with an EPS estimate of around $7.24 and P/E multiple of 16.5x in fiscal 2021, this translates into a price of around $120, which is 4% higher than the current market price of roughly $116.

While Best Buy stock could likely move upwards post its results release, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Lowe’s vs D.R. Horton shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

See all Trefis Price Estimates and Download Trefis Data here

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