With Best Buy Co Inc (NYSE:BBY)’s first-quarter financial results coming in largely in line with expectations and its outlook unchanged, analysts at UBS believe the company’s stock price will be range bound until sales improve, which would put it in a good position to realize profitability gains.
In a report, the analysts maintained their 12-month target price of $87 a share, with a ‘Neutral’ rating on the stock, believing Best Buy’s shares have a balanced risk reward at current levels.
“We think BBY’s top-line outlook may be slightly optimistic, but its gross margin outlook could also be conservative,” they said.
The analysts added that the company is implementing additional membership changes in June that will likely add incremental gross margin benefit to its previous expectations, which is in addition to Best Buy’s continued efforts to optimize its staffing levels to match demand.
Looking ahead, the UBS analysts stated that Best Buy expects 2023 to be the bottom of the decline in the consumer electronics category, and with 2023 remaining volatile it's important to keep in mind that it will include an extra week of sales, which will contribute an estimated $700 million in revenue and $0.10 earnings per share benefit.
“BBY's 1Q shows it continues to manage what it can control through the challenged demand environment,” the analysts wrote.
“Importantly BBY is shaving variable expenses by reducing its membership benefits strategically, implementing new membership tiers in June, continues to close stores, and is increasing flexible scheduling capabilities as well as part time labor.”
Shares of Best Buy ended Friday’s trading session up 4% to $74.33, but its stock is down about 8% year to date.
Contact Sean at sean@proactiveinvestors.com