Best Buy Stock Has a Lot to Prove on Wednesday

The consumer-electronics retailer gears up for an important quarterly report.

Rick Munarriz
Rick Munarriz
Feb 28, 2017 at 9:05AM
Consumer Goods

The market's in love with Best Buy (NYSE:BBY) again. Shares of the consumer-electronics retailer are trading near the nine-year highs they hit in December, and the stock has soared 60% since last year's springtime low.

Wall street's enthusiasm is worth noting. The retailer reports quarterly results on Wednesday morning, and it's going to have to earn its recent gains. 

Best Buy itself offered up ho-hum guidance for the holiday quarter when it posted better-than-expected financial results for the third quarter three months ago. It sees enterprise revenue of $13.4 billion to $13.6 billion. Even at the high point, this would be less than the $13.62 billion it scored a year earlier. The midpoint of its comps growth for the quarter is flat.

This may not seem like a recipe for giddiness, but Best Buy has had it a lot worse. Best Buy is coming off five straight years of declining revenue, and the mere 1.4% top-line uptick it clocked in with during the third quarter was its strongest quarterly revenue growth in five years. 

The big-box retailer's guidance in November was calling for adjusted earnings of $1.62 to $1.67 a share for the fiscal fourth quarter that it will discuss tomorrow. Best Buy posted an adjusted profit of $1.53 a share a year earlier.  

Best Buy showroom with a wide array of Sony TVs.

Image source: Best Buy.  

There's always drama on TV

It's not just earnings that will be front and center during Wednesday morning's conference call. Brazilian newspaper Valor Economico reported last month that Carrefour (NASDAQOTH:CRRFY) shareholders were singling out Best Buy CEO Hubert Joly as their top choice to replace current CEO Georges Plassat at the French retailing giant.

"There have been reports that I am being considered for a CEO role at another company," he responded in an emailed statement to Bloomberg. "Let me be clear, I am fully committed to Best Buy's continued transformation and have absolutely no plans to leave."

Joly obviously didn't initiate the chatter, but the prospects of him returning to his home turf in France to run the iconic Carrefour -- after working his turnaround magic at Best Buy -- can't be ignored. Best Buy may seem as if it's stagnant, but just flat growth for a brick-and-mortar chain peddling big-ticket consumer electronics and physical media in a digital age is impressive.

Some Wall Street pros are hungry for more. Bernstein initiated coverage of Best Buy earlier this month with an underperform rating and a $34 price target that implies 26% of downside. Bulls should be happy about that. A little skepticism is healthy heading into an earnings report after the stock's big run over the past nine months. It leaves more bulls to convert -- as long as Best Buy had a reasonable holiday selling season. 

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