What Stifel Is Watching At Best Buy

Best Buy Co Inc (NYSE: BBY) was down sharply in Thursday's trading, off around 3 percent, ahead of earnings next week. In a preview, Stifel said it is expecting dismal Q1 results that show that Best Buy is suffering a "moderation of online growth," among other challenges.

The analysts still have a $42 price target on the stock, roughly a 20 percent premium to current prices of $35.10. The $42 price target also corresponds to Best Buy's 52-week high, last seen in March.

Stifel noted its channel survey showed "declines in spending intentions" for Best Buy customers and, critically, for consumer electronics. In Q1, the analysts modeled 0.9 percent declines in comp sales, but expect results to show declines of 1 to 3.5 percent.

Best Buy also suffers from "a lack of product newness," softer-than-expected video game sales and Best Buy's decision to "chase" less heavy promo business. Risks to the stock include increased competition with or from Amazon.com, Inc. (NASDAQ: AMZN) and deflation in core product categories.

The analysts said they will look to the earnings report to shed more light on Best Buy's investments, particularly in Canada.

The Estimize consensus is pointing towards earnings of $0.31 per share against revenues of $8.55 billion.

Best Buy stock has struggled year-to-date, declining nearly 10 percent. Prior to these recent losses, the stock seemingly overcame worries of a slowing business, rallying 35 percent in the past year.