Best Buy's Growth Will Be Driven By AI And Margin Expansion Despite Mixed Sector Challenges: Analysts

Author: Lekha Gupta | August 30, 2024 01:46pm

Several analysts raised the price target on Best Buy Co., Inc. (NYSE:BBY) following better-than-expected second-quarter financial results reported Thursday.

Best Buy reported fiscal second-quarter adjusted EPS of $1.34, beating the street view of $1.16, and sales of $9.29 billion beat the analyst consensus of $9.24 billion.

The company raised the fiscal 2025 adjusted EPS outlook to $6.10—$6.35 (prior $5.75-$6.20) vs. the $6.08 estimate and cut the high end of its prior revenue outlook to $41.3 billion-$41.9 billion (prior $41.3 billion—$42.6 billion) vs. the $41.81 billion estimate.

J.P. Morgan analyst Christopher Horvers maintained an Overweight rating and raised the price target from $101 to $111.

The analyst notes the pull-forward in spending on computing, TVs, and appliances is ending, with a higher installed base, supporting a soft landing this year.

Additionally, the analyst projects that Best Buy will continue to benefit from ASP growth as AI adoption in consumer electronics advances.

The analyst says the pathway to a 5% operating margin (up from 4.1% last year) is achievable, with the potential for 6% when key categories, especially home theater, rebound.

Telsey Advisory Group analyst Joseph Feldman reiterated an Outperform rating and raised the price target to $115 from $95.

The analyst writes that Best Buy has a solid strategy, strong leadership, and leads in omnichannel capabilities, real estate optimization, and new revenue streams like membership and health, which positions the company well for growth when the industry stabilizes.

Feldman raised the 2024 EPS estimate to $6.33 from $6.18, with a lower comp of (2.1%) and a ten bps margin expansion to 4.2%.

For 2025, the analyst now estimates EPS of $6.97, with a 2.0% comp and a 30 bps margin expansion to 4.5%.

Piper Sandler analyst reaffirmed the Overweight rating and raised the price target to $114 from $100.

The analyst writes that despite a negative second-quarter comp and a slight second-half downgrade, the share gain reflects robust EBIT margin expansion and better sales.

With improving comps, efficient labor management, and growth in computing and tablets, the analyst sees a bright future driven by AI, PC replacement, and innovation.

Truist Securities analyst Scot Ciccarelli maintained a Hold rating and increased the price target to $107 from $86.

The analyst says that with pandemic-driven demand pull-forward easing (over 4 years since COVID), the CE upgrade cycle is expected to reassert itself. Laptop units stabilized in CY23 and showed positive first-quarter comps, with further improvements likely due to AI innovation.

However, high-ticket items like appliances remain soft, down ~20% in the second-quarter, reflecting ongoing demand challenges, adds the analyst.

Ciccarelli writes that the third quarter has started strong with flat comps and positive trends in laptops and tablets, which could also boost mobile as AI tech advances.

Ciccarelli raised CY24/CY25 EPS estimates to $6.40/$6.95 from $6.25/$6.85 and introduced a CY26 estimate of $7.60.

Apart from this, B of A Securities analyst Elizabeth Suzuki maintained Best Buy with an Underperform and raised the price target from $70 to $80.

Loop Capital analyst Anthony Chukumba maintained a Buy rating and raised the price target from $100 to $110 and Evercore ISI Group analyst Greg Melich maintained an In-Line rating and boosted the price target from $90 to $94.

Investors can gain access to the stock via Invesco Exchange-Traded Fund Trust II Invesco S&P Ultra Dividend Revenue ETF (NYSE:RDIV) and DBX ETF Trust Xtrackers S&P ESG Dividend Aristocrats ETF (BATS:SNPD).

Price Action: BBY shares are down 1.10% at $99.08 at the last check Friday.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Posted In: BBY RDIV SNPD