What to Expect From Best Buy’s Stock Post Q2 Results?

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Note: Best Buy’s FY’22 ended on January 29, 2022

Best Buy (NYSE: BBY), a specialty retailer of consumer electronics, is scheduled to report its fiscal second-quarter results on Tuesday, August 30. We expect the retailer’s stock to likely see little to no movement post fiscal Q2 with revenues missing estimates slightly but earnings coming above the consensus marginally. The company’s sales are expected to decline in fiscal 2023 (year ending Jan 2023) as contrasted with a boom in fiscal 2022 as it laps stimulus and other government support and unusually strong demand of the consumer electronics industry in the last two years. Best Buy is currently having difficulty keeping up with demand for appliances, PCs, and video game equipment largely due to global supply chain shortages. Also, the current 40-year high inflation is also another major headwind for the consumer electronics retailing niche. Consequently, the retailer provided disappointing Q2 guidance and slashed its 2023 outlook. It expects Q2 comparable sales to fall ~13%, compared to 19.6% comparable sales growth in Q2 FY22. BBY also expects Q2 adjusted operating income rate to come in at 3.7%. The retailer also projected the Q2 ending inventory balance to be approximately flat to the year-ago period.

Best Buy also slashed its 2023 guidance, citing macro headwinds, SG&A cost deleverage on the reduced sales outlook, and additional gross profit rate pressure from increased promotional activity in consumer electronics. The company expects an FY 2023 comparable sales decline of ~11% and an adjusted operating income rate of ~4%. Its prior guidance was of a comparable sales decline of 3% to 6% and an adjusted operating income rate of 5.2-5.4%.

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Our forecast indicates that Best Buy’s valuation is $73 a share, which is marginally higher than the current market price. Look at our interactive dashboard analysis on Best Buy’s Earnings Preview: What To Expect in Q2? for more details.

(1) Revenues expected to be marginally below consensus estimates

Trefis estimates Best Buy’s Q2 2023 revenues to be around $10.1 Bil, slightly below the consensus estimate. The company saw a tough selling environment in Q1 as its domestic revenue fell 8.7% to $9.89 billion –  primarily driven by a comparable sales decline of 8.5%. BBY saw comparable sales declines across almost all merchandise categories, with the largest drivers on a weighted basis being computing and home theater. The drops were anticipated as the company lapped a tough pandemic period.

We forecast Best Buy’s Revenues to be $50.2 billion for full-year fiscal 2023, down 3% y-o-y. Throughout this year, and maybe in the next fiscal year, Best Buy expects the market to slow before sales again begin setting all-time records in fiscal 2025.

2) EPS likely to come slightly ahead with consensus estimates

Best Buy’s Q2 2023 earnings per share (EPS) is expected to be $1.29 per Trefis analysis, marginally beating the consensus estimate. Best Buy’s gross margin declined by almost a full percentage point in Q1 as the company eased some of its services pricing. Best Buy’s adjusted earnings per share fell 30% y-o-y to $1.57.  BBY’s free cash flow in Q1 was negative, largely due to an increase in spending both on inventories and on accounts payable. As a result, Best Buy’s cash profits for the past 12 months have now fallen below $1 billion- less than half of its reported net income.

(3) Stock price estimate in line with the current market price

Going by our Best Buy’s Valuation, with an EPS estimate of around $8.97 and a P/E multiple of 8.1x in fiscal 2023, this translates into a price of around $73, which is in line with 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.

With inflation rising and the Fed raising interest rates, BBY stock has fallen 27% this year. Can it drop more? See how low can BBY stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Aug 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 BBY Return -4% -27% 74%
 S&P 500 Return -2% -15% 81%
 Trefis Multi-Strategy Portfolio -2% -15% 239%

[1] Month-to-date and year-to-date as of 8/29/2022
[2] Cumulative total returns since the end of 2016

 

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