Best Buy (BBY) Up 20% in 5 Days, More Momentum in Store

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More than five days have passed since Best Buy Co., Inc.BBY released with first-quarter fiscal 2018 results and the stock is still rallying. Best Buy has exhibited a bullish run in the index driven by its strategic efforts, sturdy online sales growth and solid earnings surprise history. The stock further got a boost from its recent spectacular performance in first-quarter fiscal 2018 that prompted management to provide an upbeat outlook.

More Headroom in Store for the Stock

Best Buy's shares have shown improvement in the past year and continued their uptrend after the company reported its eighteenth consecutive quarter of earnings beats. We believe the stock is yet to reach its pinnacle. Its long-term earnings per share growth rate of 11.4% and a VGM Score of "A" portray its inherent strength.

Best Buy has outperformed the Zacks categorized Retail-Consumer Electronic industry in the past year. Ever since the company reported its first-quarter fiscal 2018 results on May 25, shares have gained 19.6%. Moreover, the stock has gained 85% in the past year, comfortably outperforming the industry's gain of 61.4%.

Sturdy Q1 Results & Upbeat View Propel Stock Further

Best Buy posted adjusted earnings per share of 60 cents that surpassed the Zacks Consensus Estimate of 40 cents, and surged 40% from the year-ago quarter. The company also impressed investors on revenues, which came ahead of the Zacks Consensus Estimate after missing in the preceding quarter. The results were driven by growth in international sales. Robust performance of gaming and mobile were also the driving factors.

Management wasted no time issuing an upbeat outlook following this performance. For fiscal 2018, management forecasts Enterprise revenues (including a 53rd week in the year) growth of 2.5%, up from the prior guidance of 1.5%. On a 52-week basis, the company anticipates adjusted operating income growth rate in the range of 1.5-5.5%.

Following Best Buy's robust performance, the Zacks Consensus Estimate witnessed an uptrend as analysts raised their estimates. Analysts polled by Zacks believe this Zacks Rank #2 (Buy) stock will see an upbeat performance in the future. In the past 30 days, the Zacks Consensus Estimate for fiscal 2018 increased to $3.85 per share from $3.69.

Strategic Initiatives to Drive the Stock

The company is making extensive investments to upgrade operations with special focus on developing omni-channel capabilities and strengthening partnership with vendors. Further, owing to the shift in consumer buying behavior, retailers find the store-in-a-store concept more viable and profitable to reach their target group. We believe this strategy seems compelling to most retailers and is often considered a game changer as it facilitates the display of different brands under one roof and ensures larger footfall.

Following the successful completion of "Renew Blue" program, the company has launched a fresh strategy called "Best Buy 2020: Building the New Blue." In an effort to drive growth, the company is focused on expansion of multi-channel retail business, offering services and solutions that satisy customer needs.

Moreover, Best Buy is focusing on accelerating growth in Canada and Mexico. Under the program, it has already achieved its cost reduction target of $400 million, three quarters ahead of schedule. The company now targets $600 million of cost reduction and gross profit optimization by 2021.

Other Key Picks

Other top-ranked stock which warrant a look in the sector include Gildan Activewear Inc. GIL , Burlington Stores, Inc. BURL and PVH Corp. PVH , all three of which carry a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Gildan Activewear, with a long-term earnings per share growth rate of 12.3%, has delivered positive earnings surprise in the last two quarters.

Burlington Stores delivered an average positive earnings surprise of 22.6% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

PVH delivered an average positive earnings surprise of 6.5% in the trailing four quarters and has a long-term earnings growth rate of 11.2%.

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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.

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

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