Best Buy Earnings Preview: Tough Q4 But Bright Future Ahead

Best Buy [[BBY]] is scheduled to report fourth quarter 2009 results before the market opens on Thursday, March 26. Based on our analysis, we at are expecting BBY to report mixed results that miss Wall Street’s consensus expectations.

Analyst Expectations
We are forecasting revenues of $14.94 billion and EPS of $1.37. This would represent an 11% increase in revenues from last year’s $13.42 billion in the same period. The current analyst consensus calls for revenues of $14.82 billion and $1.39 EPS. On January 9, the company provided full-year EPS guidance of $2.50 – $2.70, implying fourth quarter EPS of $1.23 – $1.43.

The company provided December revenues of $7.5 billion which reflected a 6.5% decline in same store sales. While activity in January and February may have been slightly better than expected, we are still very cautious considering the challenging economic environment.

Our checks show that many consumers opted to shop at Wal-Mart or for their electronic purchases during the holiday season. In addition, Best Buy has also had to deal with the recent liquidation of competitor Circuit City. While we don’t expect that BBY was significantly impacted by this liquidation it may have had a limited impacted.

Looking ahead to 2009 (fiscal year 2010), it will interesting to see if management maintains its guidance of $2.30 – $2.90 EPS. There is clear opportunity for Best Buy to capture additional market share with closure of Circuit City stores, but it remains to be seen how big of an impact the economic recession will have on consumer spending in the second half of 2009.

Share Performance
Best Buy’s shares are up 17% since the beginning of the year. In 2008, it fell 47% underperforming the 34% decline in the Dow Jones index.

Shares are now trading at 14x consensus EPS estimates for calendar year 2009. This is inline with the relative valuations of their peer group. We believe that Best Buy is in a great position to expand their market share and would expect them to be a strong performer coming out of the economic recession.

Recommendation: Buy with a $38 price target.

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