Will Best Buy’s Stock Rise Following Its Q4 Results?

BBY: Best Buy logo
Best Buy

Best Buy (NYSE: BBY), a specialty retailer of consumer electronics, is scheduled to report its fiscal fourth-quarter results on Thursday, March 3. We expect the retailer’s stock to likely trade higher post Q4 with both revenues and earnings beating expectations. Best Buy’s sales benefited from higher pandemic-related demand for mobile devices, home theater equipment, and appliances in Q3. The retailer benefited from more people continuing to sustainably work and entertain at home during this time. While customers returned to stores, digital sales were still more than double pre-pandemic levels, and phone, chat, and in-home sales also continued to grow y-o-y. In addition, the company’s profitability increased despite rising supply chain costs and the management team boosted its outlook for a third straight time this year. That said, we expect this growth momentum to continue into Q4 as well. The holiday quarter usually sees high demand in areas such as video game hardware, appliances, and mobile phones.

Our forecast indicates that Best Buy’s valuation is $120 a share, which is 23% higher than the current market price. Look at our interactive dashboard analysis on Best Buy’s Earnings Preview: What To Expect in Q4? for more details.

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(1) Revenues expected to be marginally ahead of consensus estimates

Trefis estimates Best Buy’s Q4 2022 revenues to be around $17 Bil, slightly higher than the consensus estimate. In Q3, the company’s revenue rose marginally year-over-year (y-o-y) to $11.9 billion. Further, BBY’s comparable sales in the U.S. were up 2% (compared to -1.3% consensus), and its international sales were down 3% (vs. -5.3% consensus). It should be noted that BBY’s U.S. comparable sales lapped the 22.6% comp growth it experienced during the prior-year period.

Best Buy’s management expects revenue of $16.4 billion to $16.9 billion, with comparable sales potentially falling as much as 2% and adjusted gross margin declining by roughly 30 basis points in the fiscal Q4. We forecast Best Buy’s Revenues to be $52 billion for full-year fiscal 2022, up 10% y-o-y.

2) EPS likely to beat consensus estimates marginally

Best Buy’s Q4 2022 earnings per share (EPS) are expected to be $2.78 per Trefis analysis, marginally higher than the consensus estimate. Increased promotional activity, store closures, and exit from the Mexican market weighed on the company’s profit margins. Best Buy’s domestic gross margin declined to 23.4% in Q3 from 24% in the year-ago quarter, while its adjusted operating margin decreased to 5.8% from 6.1%. Still, Best Buy’s adjusted earnings per share inched up 1% to $2.08 compared to $2.06 in the prior-year period.

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

Going by our Best Buy’s Valuation, with an EPS estimate of around $10.00 and P/E multiple of 12.0x in fiscal 2022 (year ended Jan 2022), this translates into a price of around $120, which is 23% higher than the current market price.

It is helpful to see how its peers stack up. BBY Peers shows how Best Buy compares against its peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Mar 2022
MTD [1]
YTD [1]
Total [2]
 BBY Return 1% -4% 128%
 S&P 500 Return -1% -10% 92%
 Trefis MS Portfolio Return 0% -11% 252%

[1] Month-to-date and year-to-date as of 3/2/2022
[2] Cumulative total returns since the end of 2016

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