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Best Buy Could Offer Low Risk Buying Opportunity

By:
Alan Farley
Published: Sep 1, 2020, 15:37 UTC

The North American technology and appliance chain reported broad sales strength in last week's earnings release.

BBY

In this article:

Best Buy Inc. (BBY) beat Q2 2020 earnings estimates by a wide margin last week, booking a profit of $1.71 per-share. Revenue rose 3.9% year-over-year despite 25 permanent store closures, underpinned by sales strength in computing, appliances, and tablets. Comparative sales grew 5.0%, driven by a 5.8% increase in Enterprise Comparable sales and a hefty 242% increase in Domestic Comparable sales. The retail chain chose not to offer Q3 guidance due to ongoing uncertainty as a result of the COVID-19 pandemic.

Best Buy Robust E-Commerce Sales

The company, which boasts more than 1,100 stores in the United States, Canada, and Mexico, has been a top performer in the electronics and appliance space for years, with a robust e-commerce portal taking market share from Amazon.Com Inc. (AMZN) and Dow component Walmart Inc. (WMT). Online sales also kept the cash registers ringing during the first quarter shutdown, underpinning a broad recovery that lifted the stock to an all-time high in July.

Best Buy CFO Matt Bilunas discussed the withheld guidance after the release, stating, “As a result of the ongoing uncertainty, we are not providing financial guidance today. However, I would note that we are planning for Q3 sales to be higher compared to last year but likely will not continue at the current quarter-to-date level of approximately 20% growth. Also, as our stores are fully reopened, we are planning for Q3 SG&A expense to be more in line with last year’s third quarter.”

Wall Street And Technical Outlook

Wall Street consensus has improved since the earnings release, with a ‘Moderate Buy’ rating based upon 11 ‘Buy’ and 8 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines at this time. Price targets currently range from a low of $97 to a street-high $135 while the stock is now trading about $10 below the $122 median target. This positioning should support higher prices in coming months.

Best Buy broke out above the February high at 91.99 in July and added nearly 30 points into August’s all-time high at 119.48. The earnings release triggered a sell-the-news reaction that’s spent the last week testing short-term support near 109. Weekly relative strength indicators have crossed into bear cycles at extremely overbought levels, raising odds the pullback will expand into an intermediate correction that could offer a low risk entry at or above the breakout level.

About the Author

Alan Farley is the best-selling author of ‘The Master Swing Trader’ and market professional since the 1990s, with expertise in balance sheets, technical analysis, price action (tape reading), and broker performance.

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