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Anticipated Performance of Best Buy’s Stock After Q2

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Note: Best Buy’s fiscal year 2023 concluded on January 28, 2023

Best Buy (NYSE: BBY), a specialized retailer of consumer electronics, is set to announce its fiscal second-quarter results on Tuesday, August 29th. We predict a slight increase in Best Buy’s stock following Q2, with revenues aligning and earnings surpassing estimates to some extent. The consumer electronics retail sector faced significant challenges this year due to inflation and disruptions in the supply chain. Additionally, the comparison with the pandemic and stimulus-driven growth in the past two years, along with inflationary pressures, contributed to the slowdown. Despite these obstacles, Best Buy expects the market to stabilize this year, with sales returning to all-time highs in fiscal 2025.

Best Buy anticipates full-year revenue ranging from $43.8 billion to $45.2 billion. The company expects its enterprise comparable sales growth to decline between 3% and 6%. Furthermore, the operating income rate is projected to be between 3.7% and 4.1% for the full year. The estimated non-GAAP diluted EPS is expected to fall in the range of $5.70 to $6.50, compared to the consensus forecast of $6.20. In fiscal Q2, Best Buy forecasts a 6% to 8% decline in comparable sales and a non-GAAP operating income rate of approximately 3% or slightly higher.

It is worth noting that Best Buy’s stock had a Sharpe Ratio of 0.3 since early 2017, which is lower than the S&P 500 Index’s Sharpe Ratio of 0.6 during the same period. In contrast, the Trefis Reinforced Value portfolio boasted a Sharpe Ratio of 1.2. The Sharpe Ratio measures return per unit of risk, and high-performance portfolios can provide the best of both worlds.

Our analysis suggests that Best Buy’s valuation is $79 per share, representing a 6% increase compared to the current market price. For more details, refer to our interactive dashboard analysis on Best Buy’s Earnings Preview: What To Expect in Q2?

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(1) Revenues expected to match consensus estimates

According to Trefis estimates, Best Buy’s Q2 2023 revenues are likely to be around $9.6 billion, aligning closely with consensus estimates. In the recent Q1, the electronics retailer reported $9.47 billion in revenue, reflecting an 11% year-over-year decline. Best Buy experienced a 10.1% decrease in comparable sales compared to the prior year, primarily driven by declines in computing, appliances, home theater, and mobile phones. However, this decline was partially offset by growth in gaming and services. Best Buy had to rely more on discounts and promotions to drive sales, which affected its profitability. Our forecast projects Best Buy’s revenues to reach $44.4 billion for the full fiscal year 2024, a 4% year-over-year decline.

(2) EPS likely to slightly surpass consensus estimates

According to Trefis analysis, Best Buy’s Q2 2023 earnings per share (EPS) are expected to be $1.08, slightly exceeding consensus estimates. In the recent Q1, the electronics retailer reported $1.15 in adjusted EPS, with a year-over-year decline of 27%. The gross margin improved to 22.6%, representing a 70 basis points increase, while the operating margin dropped to 3.4% from 4.6% in the same quarter of the previous year.

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

Based on our evaluation, Best Buy’s estimated stock price is approximately $79, reflecting a 6% increase compared to the current market price. This estimation considers an EPS of approximately $6.08 and a P/E multiple of 12.9x for fiscal 2024.

For a comparison of Best Buy against its peers on important metrics, refer to BBY Peers. Additionally, Peer Comparisons provides useful comparisons for companies across various industries.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Source: Nasdaq.com

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