Jefferies Downgrades Best Buy (BBY) to Hold After Guidance Cut

Shares of Best Buy (NYSE: BBY) are down over 4% after the company released a preannouncement to flag weaker-than-expected trends.

BBY said it now expects full-year comparable sales down 11%, lower than the prior outlook that called for a decline of 3% to 6%. Analysts are looking for -4.15%.

The second-quarter comparable sales are expected to decline approximately 13%. Moreover, BBY paused its share buyback program.

“As high inflation has continued and consumer sentiment has deteriorated, customer demand within the consumer electronics industry has softened even further, leading to Q2 financial results below the expectations we shared in May,” said Corie Barry, Best Buy CEO.

Jefferies analyst Jonathan Matuszewski cut the rating on BBY stock to Hold from Buy with a $71 per share price target, down from $106.00. The analyst sees the downside to 2H fundamentals and capped multiple expansion, hence the downgrade to Hold.

“Following yesterday's preannouncement, we revisited the BBY bull case and believe initiatives to drive market share & profits likely to be overshadowed by a softer macro. A recession label for the US economy is being debated, but a discretionary goods recession is here. The stock is ~50% off highs, but an ongoing pivot away from discretionary stocks is not over,” the analyst wrote in a client note.

Wells Fargo analyst Zachary Fadem is “disappointed but not surprised” by the preannouncement.

“Today's update is disappointing but not surprising considering a host of rising macro concerns (rates, inflation, etc.), elevated channel inventory, and pulled forward pandemic demand. We expect shares to trade lower tomorrow and will need convincing that estimates have truly bottomed before getting more constructive,” Fadem wrote in a note.

By Senad Karaahmetovic

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