Q3 Preview: Accelerating Trends Bode Well for Best Buy (BBY), But Risk-Reward Just Not There

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Best Buy Co. ( BBY ) shares are in negative territory Monday, though faring better than some peers heading into the company's third-quarter results.

Ahead of the bell Tuesday, Best Buy is expected to report earnings of 51 cents per share on revenue of $12.14 billion. Best Buy reported third quarter 2010 earnings of 54 cents per share.

Shares gained 6.6 percent through the quarter and are up 2.2 percent since. The stock is down nearly 18 percent in 2011 and has traded within a range of $21.79 to $42.57 over the last 52 weeks.

Investors should note Apple's (Nasdaq: AAPL) iPhone 4S began selling at Best Buy during the quarter.

Last quarter, Best Buy reported cash of $5.85 and book value of $16.65 per share. Excluding cash, shares are going for 5.6x next year's earnings, compared with 86x for (Nasdaq: AMZN), and 11.4x for Wal-Mart ( WMT ).

Data from Bloomberg has nine analysts with a Buy rating, 15 at Hold, and one with a Sell-equivalent call. The price target average on the Street is $30.75, with a low of $21 and high of $46.

Analyst Comments

  • JPMorgan is modeling earnings of 51 cents per share, with comps expected to be up 1.5 percent. The firm likes the end-of-quarter momentum for Best Buy with TV shipments in particular reporting a 1.3 percent gain in the last two months of the period.

    With increased promotions over the Black Friday weekend, JPMorgan sees domestic comps down 0.25 percent, versus previous expectations for a 0.10 percent dip.

    JPMorgan is neutral on valuation, saying there are too many factors in play for that "last 10 percent" of gain that's still locked in.

  • Wedbush sees earnings of 50 cents per share on revenue of $12.1 billion, with comps down 5.6 percent. Key factors weighing on results include domestic consumer electronics and entertainment sales.

    Wedbush did give this telling assessment in their analysis: "Although Best Buy remains the best available physical location to view new items from a variety of product lines and manufacturers, it is not necessarily the least expensive place to buy them. Instore comparison shopping through smartphones makes the differences between Best Buy's prices and those of its lower-priced competitors readily apparent."

  • Deutsche Bank sees earnings of 52 cents per share with a 2.1 percent drop in comps. Deutsche commented, "Looking at our domestic comp, by category, we expect positive comps from mobile categories, including phones and tablets, as well as appliances. We expect televisions and notebook computers to be negative, but less negative than last quarter and we expect gaming to also show some improvement."

    Deutsche is also bullish following several in-store visits, as well as improving NPD data.

Stay tuned to's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Best Buy's past performance at Streetinsider's Best Buy's Income Statement .

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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