Jefferies Maintains BUY Rating On Best Buy Co Inc (NYSE:BBY), But Cites Mobile Weakness

Best Buy Co Inc (NYSE:BBY)’s BUY rating has been reaffirmed at Jefferies following the retailer’s fairly strong holiday sales. Strong demand for television sets, appliances and wearables supported BBY’s holiday sales, enabling the company to outperform the broader industry by 4%. However, mobile phone sales disappointed during the holiday season and BBY was not the only retailer feeling the pinch.

Best Buy Co Inc (NYSE:BBY)’s holiday sales also surprised in laptop and PC sales, which were flat from a year ago despite the widespread pressures in the industry. However, the decay in the tablet market persisted that BBY could not help but see holiday tablet sales shrink further from a year earlier. Overall, BBY’s holiday sales slightly missed expectation, but strong execution on expenses and promotions helped boost the bottom.

As such, the management is forecasting EBIT margin to decline by only 15-30bps instead of 25-45bps. Domestically, EBIT margin is expected to shrink by 10-15bps.

Performance estimate

Jefferies believes that Best Buy Co Inc (NYSE:BBY) will continue to improve its topline and bottom-line numbers in the coming quarters. However, the firm is taking a more conservative outlook for BBY in fiscal 2017. As such, Jefferies is modeling fiscal 2017 first half comp sales to descend 1%. But it hopes BBY will still beat the broader industry by 4%. As for the bottom-line, Jefferies is cutting its EPS estimate for 2017 to $2.98 from $3.03 in the earlier forecast.

Shares buyback

Given BBY’s strong cash position coupled with the fact that the stock is currently trading at a discount, Jefferies sees potential for accelerated buyback program. Jefferies notes that BBY is already ahead of pace on the plan to return $1 billion to shareholders through buybacks.

Jefferies estimates that Best Buy Co Inc (NYSE:BBY)’s cash and short-term investment is worth about $3.7 billion, which should support aggressive stock repurchases.

Jefferies has a 12-month price target of $39 on Best Buy Co Inc (NYSE:BBY). The stock is presently trading in the vicinity of $26.

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