Holiday Overview of Best Buy

With the Holiday Season in full swing, analysts comment on improvements by Best Buy (NYSE: BBY) and increase estimates before the company's report on third quarter results.

On October 21, ISI analyst Greg Melich raised 2013 EPS from $2.35 to $2.45 and 2014 EPS from $2.65 to $2.80. Melich increased the base case from $32.00 to 36.00 as well. The analyst noted the continued share gain in a declining consumer electronics market. ISI data shows that Best Buy gained 130bps in tablet shares, 190bps in appliance dollar shares, and 400bps in TVs. Using this data, Melich increased Q3 comp from 1.5 percent to 3 percent.

Goldman Sachs analyst Matthew J. Fassler reiterated a Buy rating on Best Buy and raised the price target from $37.00 to $47.00 on November 1st. Fassler expanded on the company's "significant fundamental initiatives" including TV share gains, Windows store-within-store, and website improvements.

Goldman Sachs published, "We hike estimates to reflect stronger sales on home office initiatives and electronics market share gains. Our forecasts continue to embed the investments and isolated items management highlighted on its 2Q call, including higher warranty costs on mobile claims, a less lucrative credit deal, and reinvestment in “Renew Blue” initiative that defray some cost savings."

On November 5, Piper Jaffray analyst Peter Keith reiterated an Overweight rating and raised the PT from $43.28 to $53.00. Keith commented on Best Buy's space optimization replacing 10 percent of physical media with other products including Samsung store-in-store, tablets and expanded mobile area.

Keith continued, "closing the productivity gap on 10 percent of the big box selling space previously allocated to physical media, and bringing it fully in line with the productivity of the rest of the store would equate to a comp benefit of 9 percent and an EPS lift of $1.49."

Deutsche Bank analyst Mike Baker gave an overview on Best Buy's 3Q13 on November 6th. Deutsche Bank noted that expectations are high as shares surge despite the fact that Best Buy tends to underperform this time of year. The analyst believes the company will report solid comps and will likely beat the EPS estimate.

Baker commented, "Once a bad word for Best Buy, the company is now inviting customers to come in and showroom in its holiday advertising. A bold strategy, but consistent with the big swings the new management team has taken."

In a report published today, UBS analyst Michael Lasser upgraded Best Buy from Neutral to Buy and raised the price target from $35.00 to $49.00. Lasser noted that CY14 estimates will likely move to greater than $3 versus the current $2.75. Likewise, CY15 estimates will likely move from $3.09 to $3.50+.

These increases are due to factors including a gaming boost, connectivity with more vendors, Amazon and Google kiosks in stores and Best Buy's Renew Blue plan. The Renew Blue plan is expected to produce $1 billion in cost savings.

UBS forecasts that Best Buy will have $1.1 billion in net cash by the end of the year, and will likely grow another $700 million by the end of FY 2015. Lasser further comments, "The complicated nature of Best Buy's business means that its share can easily become mis-priced. We think the stock still under-appreciates the company's earnings potential. As further signs of its progress emerge, we think the shares will move higher."

Jefferies Analyst Daniel Binder increased the PT from $40 to $52 today as well. Binder reported that Best Buy has better than expected comp sales resulting from improved service levels, price investments, and space reallocation work.

Jefferies wrote, "Even before the benefits that should accrue to Best Buy from its space reallocation work, it appears Best Buy has started gaining share from some key players like Walmart, Costco, and hhgregg. This reflects investments in price, service and expanded assortments."

Best Buy is up 258 percent YTD versus the S&P 500 which is trading +33 percent for the year. Approaching the holiday season last year, shares hit a low at $11.57 on November 21st and only slightly recovered to $14.12 on December 12th before the gradual increase starting in the New Year.

Shares of Best Buy closed at $42.41 on Friday and is currently +3.32 percent.