Best Buy Testing Long-Term Support

Best Buy Co. Inc. (BBY) reports Q4 2021 earnings ahead of Thursday’s opening bell, with analysts looking for a profit of $2.77 per-share on $16.7 billion in revenue. If met, earnings-per-share (EPS) will mark a 20% profit decline compared to the same quarter last year.  The stock fell more than 12% in November despite beating Q3 estimates and raising fiscal year 2022 guidance and has relinquished another 23% into Monday’s opening bell.

Retail Stocks Hit Brick Wall

The retail stock universe entered a steep correction in November 2021, with SPDR S&P Retail ETF (XRT) dropping more than 25% after hitting an all-time high ahead of the Thanksgiving weekend. Omicron and worries about holiday supply disruptions weighed on sales and sentiment into early February when Ukraine and inflation headlines took control, triggering a second major blow to market sentiment.

Telsey Advisory Group analyst Joe Feldman lowered his Best Buy target on Monday, noting “we expect sales and EPS growth to resume in 2023, given the company’s initiatives and continued market share gains. Currently, Best Buy’s valuation is inexpensive, trading at a FY2 P/E multiple of ~10.2x vs. the S&P 500 Index at ~19.6x. We maintain our Outperform rating but are lowering our 12-month price target to $125 from $150, based on applying a P/E multiple of 13x (in line with historical average and down from ~15x) to our 2022 EPS estimate of $9.74″.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 10 ‘Buy’, 2 ‘Overweight’, 14 ‘Hold’, 1 ‘Underweight’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $82 to a Street-high of $155 while the stock is set to open Monday’s session just $13 above the low target. This placement is consistent with an equity undergoing distribution in a downtrend that’s just now reaching longer-term support levels.

Best Buy broke out above resistance in the mid-80s in the summer of 2020, entering a strong uptrend that stalled at 125 in November. Breakout attempts in February, May, and August 2021 failed while a November buying spike posted an all-time high at 141.97 before reversing in another failure. Bears then took control, dumping the stock into the 200-week moving average during last week’s decline. Look for continued testing of this level after this week’s confessional.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.