Barron's Bearish on Best Buy (BBY)

Barron's published a bearish piece on Best Buy (NYSE: BBY) late last night, calling it "Far From the Best Buy". The article follows a 60% rise in shares of Best Buy since mid-November "amidst the worst consumer downturn in a generation", as Barron's puts it.

The article argues that market share gains at Best Buy following Circuit City's bankruptcy will not be able to offset declining sales volumes as US consumers continue to cut back on spending, especially for electronics. Increased competition from retailers such as Wal-Mart (NYSE: WMT), Target (NYSE: TGT) and Amazon (Nasdaq: AMZN) also threaten Best Buy's margins as these other retailers cut prices.

Barron's strongest point is summarized in one sentence: "With the unemployment rate standing at 7.2% at the end of last month, it's hard to imagine anyone who doesn't have a 42" TV that is inclined to buy one now." Great call.

Despite continued market share gains, a comfortable level of EBITDA, and aggressive initiatives to cut CapEx in '09, Best Buy could be the target of analyst estimate revisions. Barron's believes that the Street's current FY10 EPS estimate of $2.30 could prove to be "too optimistic" on the back of the issues discussed above.

Shares of Best Buy are underperforming today compared to the broader retail sector, which is up 0.7% as measured by the Retail HOLDRs ETF (NYSE: RTH). Best Buy is currently down about 0.8% to $27.33.

Best Buy Co., Inc., together with its subsidiaries, operates as a specialty retailer of consumer electronics, home office products, entertainment software, appliances, and related services primarily in the United States, Canada, and China.

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