After a 17% decline over the last year, at the current price of around $83 per share, we believe Best Buy’s stock (NYSE: BBY), an electronics specialty retailer – is fairly priced. BBY stock has declined from $99 to $83 in the last year, underperforming the broader indices, with the S&P falling 13% over the same period. Several big factors hurt the consumer electronics retailing niche, including the rampant inflation and supply chain disruptions. Throughout the first three quarters of fiscal 2023, Best Buy’s enterprise comps growth remained negative. Additionally, the company’s adjusted operating margins consistently declined year-over-year and sequentially. A tough comparison with the pandemic and stimulus-induced growth over the past two years and inflationary headwinds contributed to the slowdown.
In the recent Q3, the electronics retailer posted $1.38 (down 34% year-over-year) in adjusted EPS, exceeding the $1.02 consensus, and $10.59 billion in revenue (down 11% y-o-y), rising above the $10.3 billion analyst expectation, despite a 10.4% decline in comparable sales from the prior year. Consumers spent less on computers and home theater equipment after loading up on mobile devices and TVs during the early stages of the pandemic. Best Buy was forced to rely more on discounts and other promotions to drive sales, which weighed on its profitability. Its gross and operating margins fell to 22% and 3.4%, respectively, from 23.5% and 5.6% in the year-ago quarter. While customers are slashing their spending on technology and other big-ticket purchases, Best Buy is offsetting these lost or delayed sales with new offerings in other popular areas, such as outdoor furniture and appliances.
We forecast Best Buy’s Revenues to be $46.2 billion for the full year 2023 (year ending Jan 2023), down 11% y-o-y. Looking at the bottom line, we now forecast EPS to come in at $6.66. Given the changes to our revenues and earnings forecast, we have revised our Best Buy’s Valuation to $82 per share, based on $6.66 expected EPS and a 12.4x P/E multiple for fiscal 2023 – almost in line with the current market price.
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Throughout the first two quarters of fiscal 2023, BBY repeatedly reduced that guidance as it faced tougher inflationary and supply chain challenges. But after Q3 , the management raised the guidance slightly for the full year. The company now expects enterprise comps growth to decline 10% in FY 2023 compared to a previously stated 11% decline. Additionally, the company lifted its adjusted operating margin target to above 4%.
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