Best Buy (BBY) Should Benefit From Slowdown at Other Retailers -Barron's
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In this weekend's edition of Barron's, the publication highlighted reasons why Best Buy (NYSE: BBY) stock looks like a Buy. As a simple yet effective intro to the article, Barron's says that "Recession or no recession, the masses will have their gadgets and gizmos."
Barron's likes Best Buy as it is often viewed as the only option for shoppers looking to buy electronics, making it a benefactor from slowdowns at other retailers. The article cites Circuit City's (NYSE: CC), one of Best Buy's top competitors, same store sales and revenues growth as prime examples of this factor: in Q3, Circuit City reported its comps were down 5.6% and revenues fell by 3.1%, while Best Buy posted a rise of 6.7% in same store sales and revenue growth of 17% during the same quarter.
On a valuation basis, shares of Best Buy look relatively cheap; down 20% from its 52-week high of $53.90 set in December, the stock currently trades at a historic low multiple of about 12.5x FY09 expected EPS and 6x FY09 expected cash flow. On average, Best Buy normally trades between 15-18x EPS and 9x cash flow.
The Barron's article, entitled "Consumers Turned Off? Not at Best Buy", points out several catalysts that should drive shares higher: continued strong performance in the video-game sector, the resolution of the disc-format wars between Sony's (NYSE: SNE) Blu-ray and Toshiba's HD DVD, and a government mandated conversion of analog to digital TV's by February 17, 2009.
Despite a discounted valuation and challenging environment, Best Buy continues to anticipate posting double digit earnings growth of about 10% year-over-year. [BCS]
Barron's likes Best Buy as it is often viewed as the only option for shoppers looking to buy electronics, making it a benefactor from slowdowns at other retailers. The article cites Circuit City's (NYSE: CC), one of Best Buy's top competitors, same store sales and revenues growth as prime examples of this factor: in Q3, Circuit City reported its comps were down 5.6% and revenues fell by 3.1%, while Best Buy posted a rise of 6.7% in same store sales and revenue growth of 17% during the same quarter.
On a valuation basis, shares of Best Buy look relatively cheap; down 20% from its 52-week high of $53.90 set in December, the stock currently trades at a historic low multiple of about 12.5x FY09 expected EPS and 6x FY09 expected cash flow. On average, Best Buy normally trades between 15-18x EPS and 9x cash flow.
The Barron's article, entitled "Consumers Turned Off? Not at Best Buy", points out several catalysts that should drive shares higher: continued strong performance in the video-game sector, the resolution of the disc-format wars between Sony's (NYSE: SNE) Blu-ray and Toshiba's HD DVD, and a government mandated conversion of analog to digital TV's by February 17, 2009.
Despite a discounted valuation and challenging environment, Best Buy continues to anticipate posting double digit earnings growth of about 10% year-over-year. [BCS]
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