What To Expect From Best Buy’s Stock Post Q2?

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BBY: Best Buy logo
BBY
Best Buy

Note: Best Buy’s FY’23 ended on January 28, 2023

Best Buy (NYSE: BBY), a specialty retailer of consumer electronics, is scheduled to report its fiscal second-quarter results on Tuesday, August 29. We expect the retailer’s stock to increase marginally post fiscal Q2 with revenues coming in line and earnings beating estimates slightly. Several big factors hurt the consumer electronics retailing niche, including rampant inflation and supply chain disruptions this year. A tough comparison with the pandemic and stimulus-induced growth over the past two years, as well as inflationary headwinds, contributed to the slowdown. Throughout this year, Best Buy expects the market to slow before sales again begin setting all-time records in fiscal 2025.

BBY expects full-year revenue in the range of $43.8 billion to $45.2 billion. Its enterprise comps growth is expected to decline in the range of 3% to 6%. Also, the company forecasts its operating income rate to range between 3.7% to 4.1% for the full year. Additionally, its non-GAAP diluted EPS is expected to come in the range of $5.70 to $6.50 compared to the consensus of $6.20. In the fiscal Q2, BBY expects its comparable sales to decline in the range of 6% to 8% and the non-GAAP operating income rate to be approximately 3% or slightly higher.

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Notably, BBY stock had a Sharpe Ratio of 0.3 since early 2017, which is lower than the figure of 0.6 for the S&P 500 Index over the same period. Compare this with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

Our forecast indicates that Best Buy’s valuation is $79 a share, which is 6% 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 match consensus estimates

Trefis estimates Best Buy’s Q2 2023 revenues to be around $9.6 billion, almost in line with the consensus estimate. In the recent Q1, the electronics retailer posted $9.47 billion in revenue (down 11% y-o-y). The retailer saw a 10.1% decline in comparable sales from the prior year. The largest drivers of the comparable sales decline on a weighted basis were computing, appliances, home theater, and mobile phones. Those drivers were partially offset by growth in the gaming and services categories. Best Buy was forced to rely more on discounts and other promotions to drive sales, which weighed on its profitability. We forecast Best Buy’s Revenues to be $44.4 billion for the full-year fiscal 2024, down 4% y-o-y.

2) EPS likely to come in slightly ahead of consensus estimates

Best Buy’s Q2 2023 earnings per share (EPS) is expected to be $1.08 per Trefis analysis, marginally beating the consensus estimate. In the recent Q1, the electronics retailer posted $1.15 (down 27% year-over-year) in adjusted EPS. Its gross margin improved to 22.6%, up 70 basis points, but its operating margin fell to 3.4% from 4.6% in the prior-year quarter.

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

Going by our Best Buy’s Valuation, with an EPS estimate of around $6.08 and a P/E multiple of 12.9x in fiscal 2024, this translates into a price of around $79, which is 6% 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.

Returns Aug 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 BBY Return -10% -7% 75%
 S&P 500 Return -3% 16% 98%
 Trefis Reinforced Value Portfolio -5% 29% 563%

[1] Month-to-date and year-to-date as of 8/25/2023
[2] Cumulative total returns since the end of 2016

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