Better Times Ahead for Best Buy Shareholders

Best Buy Co. Inc. (BBY) rallied more than 5% on Monday, lifting off a six-month low after bullish analyst commentary. The appliance and electronics chain has underperformed major benchmarks so far in 2021, gaining about 10% while stuck within a massive consolidation pattern stretching back to August of last year. That performance matches the stock’s 2020 return, which was less impressive than a broad swatch of equally-sized retailers.

Delta Fears Weigh on Price Action

Shareholders were looking forward to better times after Best Buy blew away Q2 estimates in the August report, posting a profit of $2.98 per-share on $11.85 billion in revenue. Higher Q3 and fiscal year 2022 guidance set off an immediate wave of buying interest, lifting the stock more than 8% overnight. However, Delta fears then took control, generating an immediate reversal and persistent decline that shed more than 20 points in just five weeks.

Piper Sandler analyst Peter Keith raised his form’s target to $150 on Monday, noting “Based on our analysis, we believe BBY Total Tech can result in a ~3% comp growth lift and 5-8% EPS growth in each of CY22 and CY23. Our analysis assumes that (1) BBY at least doubles its member count over the next 2 years (from 3M to 6M+), (2) New Total Tech members spend an incremental $400-500 with Best Buy each year (which we think is likely ~2 incremental purchases), and (3) Contribution margin from Total Tech revenue is 10-15%.”

Wall Street and Technical Outlook

Wall Street consensus eased along with price over the summer, yielding an ‘Overweight’ rating based upon 10 ‘Buy’, 3 ‘Overweight’, 14 ‘Hold’, and 1 ‘Underweight’ recommendation. Two analysts recommend that shareholders close positions. Price targets currently range from a low of $80 to a Street-high $157 while the stock is set to open Tuesday’s session about $23 below the median $134 target. This placement should support high prices in coming weeks.

Best Buy topped out near 80 in August 2018 and entered a broad trading range with support in the upper 40s. It completed a breakout in July 2020, lifting into 125 in November. That peak has marked resistance for the last 11 months, with four failed breakout attempts weighing heavily on investor sentiment. The stock broke five-month support during the summer decline but has now remounted that barrier, predicting that pullbacks to 105 will offer low risk buying opportunities.

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