Down 15% This Year, Where Is Best Buy Stock Headed Post Q3?

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87.73
Market
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Trefis
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 third-quarter results on Tuesday, November 21. We expect the retailer’s stock to increase post-fiscal Q3 with revenues 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 $44.5 billion. Its enterprise comps growth is expected to decline in the range of 4.5% to 6%. Also, the company forecasts its operating income rate to range between 3.9% to 4.1% for the full year. Additionally, its non-GAAP diluted EPS is expected to come in the range of $6.00 to $6.40 compared to the consensus of $6.10. In the fiscal Q3, BBY expects comparable sales to be slightly better than the negative 6.2% the company reported for the second quarter and also expects its adjusted operating margin to be approximately 3.4%.

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BBY stock has suffered a sharp decline of 30% from levels of $100 in early January 2021 to current levels, vs. an increase of about 20% for the S&P 500 over this roughly 3-year period. Notably, BBY stock has underperformed the broader market in each of the last 3 years. Returns for the stock were 2% in 2021, -21% in 2022, and -15% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 18% in 2023 (YTD) – indicating that BBY underperformed the S&P in 2021, 2022, and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BBY face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

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 Q3? for more details.

(1) Revenues expected to beat consensus estimates marginally

Trefis estimates Best Buy’s Q3 2024 revenues to be around $9.6 billion, slightly ahead of the consensus estimate. In Q2, the electronics retailer posted $9.58 billion in revenue (down 7% y-o-y). The retailer saw its domestic comparable sales fall 6.3% during the quarter. The comp decline was better than a 12.7% comp in the prior year quarter to highlight the steep drop in sales for the electronics retailer over a two-year period. 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 Q3 2024 earnings per share (EPS) is expected to be $1.22 per Trefis analysis, marginally beating the consensus estimate. In Q2, the electronics retailer posted $1.22 compared to $1.54 a year ago in adjusted EPS. Its gross margin improved to 23.1%, up 110 basis points, but its operating margin fell to 3.8% from 4.1% in the prior year quarter.

(3) Stock price estimate 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 16% 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 Nov 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 BBY Return 2% -15% 60%
 S&P 500 Return 8% 18% 102%
 Trefis Reinforced Value Portfolio 7% 26% 547%

[1] Month-to-date and year-to-date as of 11/20/2023
[2] Cumulative total returns since the end of 2016

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