03. Best Buy Co., Inc. (NYSE:BBY)
Price Reaction after the Upgrade: +2.37(+2.60%)
On June 17, UBS analysts upgraded Best Buy Co., Inc. (NYSE:BBY), a key player in the electronics retail industry, from “Neutral” to “Buy”, raising the price target from $85 to $106 per share. This upgrade is driven by several factors that present a compelling risk-reward proposition for investors, leading to a potential outperformance. UBS analysts highlighted multiple drivers of potential upside over the next 18 months, including an improving housing market, which is positively correlated with appliance sales, an impending electronics replacement cycle, and increased adoption of AI-powered devices. UBS estimates these factors could boost sales by an average of 2 percentage points. Additionally, Best Buy Co., Inc. (NYSE:BBY) expansion into new product categories such as e-bikes and furniture offers further growth opportunities. UBS expects these elements to contribute to a “nice recovery” in Best Buy’s sales in the latter half of 2024 and into 2025, emphasizing the company’s historical strength in capturing market share during early stages of product cycles.The report also credits Best Buy Co., Inc. (NYSE:BBY) restructuring efforts, noting that a significant reduction in staffing levels per store has improved its earnings potential. Analysts suggest that even a slight increase in staffing, coupled with a 3% rise in comparable sales next year, could drive EPS to $7.30, surpassing the current consensus estimate of $6.70. Beyond these growth catalysts, UBS highlights Best Buy Co., Inc. (NYSE:BBY) attractive valuation. The company’s current dividend yield of 4.3%, its 30% discount to the S&P 500, and a strong cash position provide significant downside support. UBS believes the stock is undervalued and not fully reflecting Best Buy Co., Inc. (NYSE:BBY) earnings potential. Following the upgrade, Best Buy Co., Inc. (NYSE:BBY) stock price rose by 2.60%, indicating a positive market reaction to UBS’s improved outlook and strategic insights.
Mairs & Power Growth Fund stated the following regarding Best Buy Co., Inc. (NYSE:BBY) in its fourth quarter 2023 investor letter:
“We added two smaller positions to the portfolio in the fourth quarter as well—Piper Sandler (PIPR) and Best Buy Co., Inc. (NYSE:BBY)–both of which are Minnesota-based. We also initiated a position in Best Buy, a leading electronics retailer with more than 1,000 stores nationwide. We’ve been impressed with management’s ability to navigate a difficult retail landscape, gaining share amongst its offline competitors. The consumer electronics market is suffering from a spending hangover after the Pandemic, but we are starting to see green shoots of a recovery; in the meantime, Best Buy offers a 5% dividend.”
