With its stock down some 12% over the past year, Best Buy (BBY) has delivered the sort returns investors expected, especially as the retail giant has survived what was once perceived as an inevitable death at the hands of Amazon (AMZN).
Today, Best Buy, which is set to report first quarter fiscal 2019 earnings results before Thursday’s opening bell, is doing more than just surviving. One of the last real names in bog box in brick-and-mortar that is still growing revenue, Best Buy now has a moat within the realm of electronics retail. The only remaining competition is now online — an area where Best Buy has successfully grown, thanks to its various investments in omni-channel offerings as well as transformation to its supply chain.
These moves, along with its increased use of technology and automation, are aimed at improving the customer experience while driving cost cuts — all of which could strengthen Best Buy’s competitive advantage in the quarters and years ahead. So with its stock having fallen 12% over the past twelve months versus a 10% rise for the S&P 500, Best Buy offers tremendous value, especially when combined with its 2.70% dividend yield.
But first, it must take care of business Thursday.
In the three months that ended March, the Minnesota-based company is expected to earn 86 cents per share on revenue of $9.13 billion. This compares to the year-ago quarter when earnings came to 82 cents per share on revenue of $9.11 billion. For the full year, ending in December, earnings of $5.66 per share would rise 6.3% year over year, while full-year revenue of the $43.56 billion would rise 1.6% year over year.
The business condition of Best Buy is not as bad as its stock performance might indicate. And it seems the market has quickly forgotten that Best Buy's fiscal fourth-quarter earnings results showed that some of its struggles are now a thing of the past. Adjusted earnings as a percentage of revenue rose to 6.7% from 6.4% a year ago. Meanwhile fourth quarter comparable sales were up 3.0%, easily topping consensus estimate of +1.8%.
Just as impressive, domestic comparable online sales were up 9.3%. And the company showed no signs of slowing down. Looking ahead, Best Buy guided for full-year revenue in the range of $42.9 to $43.9 billion, compared to the $43.4 billion analysts were looking for. Full-year EPS forecast of $5.45 to $5.65 per share was well above consensus of $5.48 per share. The company also announced a new share buyback plan of $3 billion, replacing its prior authorization.
In other words, Best Buy sees tremendous value in its shares. While concerns surrounding trade with China might be a near-term headwind, given the amount of electronics sourced from China that Best Buy sells, the risk-reward on Best Buy is positive as the stock is priced at just 12 times forward earnings estimates of $5.66, which is five points below the S&P 500 index. Again, for that to matter, the company must take care of business Thursday.