Does Weakness Create a “Best” or Worst Buy?
After producing gains of 130% in 2013, Best Buy Co., Inc. (NYSE:BBY) announced a mixed Q1 report, and is now trading lower by almost 5%.
In the quarter, Best Buy Co., Inc. (NYSE:BBY) missed revenue expectations by almost $1 billion. The company saw a 1.1% year-over-year decline in comparable-store sales, and a 190-basis-point drop in gross profit year over year. Meanwhile, the company actually beat expectations on the bottom line, providing some light at the end of the tunnel.
As we look ahead, the company is preparing for its “store-in-a-store” era. Best Buy Co., Inc. (NYSE:BBY) specifically notes that it will focus on this transition during the upcoming quarter, in an attempt to find new partners.
The company also saw an impressive 16% year-over-year boost in online sales during the quarter. According to the company, growth was greater in states where online sales tax is collected. This could be a trend to watch as individual states begin to require tax on goods purchased online.
With all things considered, I am encouraged with the company’s online growth and I am excited to see the outcome of its “store-in-store” approach. As a retailer, Best Buy Co., Inc. (NYSE:BBY) is very cheap. The stock trades at just 0.18 times its annual sales and only 10.5 times next year’s expected earnings.
Compared to large retailer Wal-Mart, Best Buy Co., Inc. (NYSE:BBY) trades at a 50% discount to sales and a 30% discount to next year’s earnings. Moreover, the electronics chain has a forward yield of 2.6%. Therefore, I think Best Buy’s upside potential and value create a solid buying opportunity.
A Solid Undervalued Company Worth Buying
Medtronic, Inc. (NYSE:MDT) slightly beat expectations on both the top and bottom lines. The stock is now trading higher by 5.5%.
The company grew its revenue by 5% year over year, while EPS grew 11% in the same period. Medtronic, Inc. (NYSE:MDT) now sees full-year growth of 3-4% with an almost 50/50 share between international and domestic sales.
Medtronic, Inc. (NYSE:MDT) is an efficient and stable large-cap company, with sales of almost $17 billion annually, strong profit margins over 20%, and a debt-to-assets ratio of less than 25%. Those metrics suggest the company manages its assets well and produces a solid return on its revenue.
Furthermore, the stock is trading at just 15.2 times earnings, which compares favorably to the S&P 500’s premium of 19 times earnings. Overall, I see no obvious risks associated with Medtronic, Inc. (NYSE:MDT), and I believe that the stock is a “buy” after earnings.
Waiting For Margin Improvements
The top post-earnings performance of the day definitely goes to Saks Inc (NYSE:SKS) The stock produced gains of 8% after beating expectations in its latest quarterly report. However, its comparable-store sales growth of 5.9% year over year, and full-year growth guidance of 4%-6%, created the most optimism among investors.
Along with impressive growth, the company says it plans to accelerate the launch of Off5th.com this fall. The company’s “OFF 5TH” stores have outperformed total store growth since opening in 2008, and Saks believes the new online channel will further boost growth and improve margins.
From an investment perspective, Saks Inc (NYSE:SKS) is fairly priced with other specialty retailers. It trades at a slight premium to earnings (with a P/E of 32 vs. the industry’s 23) but is cheaper on a sales basis (with a P/S of 0.71 vs. the industry’s 1.15).
