Best Buy Earnings Preview: Fiscal Second Quarter 2010

Best Buy [[BBY]] is scheduled to report their fiscal second quarter 2010 results before the market opens on Tuesday, September 15th. Based on our analysis, we at are expecting BBY to report inline results that meet Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $10.76 billion and EPS of $.41. This would represent a 10% increase in revenues from last year’s $9.80 billion in the same period. The current analyst consensus estimates calls for revenues of $10.76 billion and EPS of $.41. On June 16, the company reiterated their full year guidance of $2.50 – $2.90 EPS.


Last quarter we were able to accurately predict a strong earnings beat from Best Buy, but this quarter looks to be much tougher for the electronics retailer. We believe that Best Buy will likely expand upon their recent market share gains, but likely still faces challenges from weak consumer demand. However, management remains optimistic about opportunities in their international markets.


Given our expectations of an inline quarter, we see no reason for Best Buy to significantly revise their full year guidance. Despite the strong earnings beat last quarter, the stock still sold off significantly following the earnings report over concerns of continued weakness in consumer spending. Today’s report that the national unemployment rate jumped to 9.7% in August could mean more investors will head to the sidelines until the trends begin to improve.


Stock Performance

Since the beginning of 2009, Best Buy’s shares have gained nearly 40% and have outperformed the 27% gain in the Nasdaq. However last year, BBY’s stock fell 47% and underperformed even the 41% drop in the Nasdaq.



Shares are now trading at less than 13x consensus 2011 EPS estimates. This is a discount to the relative valuations of their peer group. We continue to believe that Best Buy offers investors good long term prospects at an attractive valuation.


Recommendation: Buy with a $42 price target.


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