BofA Analyst Maintains Underperform Rating on Best Buy (BBY) with Price Target Ahead of Q3 Earnings

BofA Analyst Maintains Underperform Rating on Best Buy (BBY) with $80 Price Target Ahead of Q3 Earnings

November 22, 2024 Catherine Williams - Chief Editor Tech

BofA Securities Analyst Maintains Underperform Rating on Best Buy

Robert F. Ohmes, an analyst at BofA Securities, has kept an Underperform rating on Best Buy Co, Inc (BBY) and set a price target of $80. He is cautious about Best Buy before its fiscal third-quarter 2025 earnings report, set for November 26. Ohmes estimates revenue of $9.62 billion and earnings per share (EPS) of $1.26.

Enterprise comparable sales are forecasted to decline by 1%, a slight improvement from the 2.3% drop in the fiscal second quarter. Sales from computing products like notebooks and tablets are expected to compensate for weaknesses in appliances and home theater areas. However, data indicates that many consumers are delaying purchases in hopes of better holiday sales.

Ohmes predicts limited gross margin growth in the second half of fiscal 2024 compared to the first half. Changes in services and membership programs, along with increased promotional activities in a fluctuating consumer market, are contributing factors. The analyst expects a slight decline in credit card profit-sharing pressure, which could affect the third quarter more than the fourth.

For 2025, Ohmes sees fewer growth opportunities for margins, diverging from the past two years’ trends. He anticipates a year-over-year increase in Best Buy’s selling, general, and administrative (SG&A) expenses in the second half of 2024, reversing the positive trend from the first half. Rising marketing costs and more store labor in appliance and home theater departments are driving this growth.

Ohmes maintains his Underperform rating, citing challenges such as tough discretionary spending conditions and competition from retailers like Walmart and Costco. These factors may overshadow any gains in computing and services and hinder stabilization in the consumer electronics sector until late 2024.

His 12-month price target of $80 is based on 12 times the projected fiscal 2026 EPS. This figure is slightly above Best Buy’s long-term average but below the hardline retail sector average of 16 times. While discretionary spending challenges can impact valuation, the ongoing demand for consumer electronics and services, supported by remote work and learning, provides some protection against significant downturns.

Current Stock Status: Best Buy’s stock (BBY) has risen 3.62% to $89.65 as of the last update.