Analysts at Jefferies have upgraded Best Buy Co Inc (NYSE:BBY) to ‘Buy’ from 'Hold', citing an expected improvement in demand as the replacement cycle for consumer electronics bought during the pandemic gets closer and rising consumer interest in artificial intelligence (AI) adds a “cherry on top.”
“'24 won't be a banner year,” but investor expectations for negative mid-single digit declines in comparable sales are conservative given double-digit and high single-digit declines in 2022 and 2023, respectively, the analysts wrote in a client note.
“With conviction in a replacement cycle for pandemic buys starting soon and reassurance in market share, we upgrade to Buy,” they added.
With the number of connected devices twice as big as it was pre-pandemic, the analysts said this category is positioned to benefit during the replacement cycle. Additionally, as AI productivity efficiencies spread, notebooks with faster processor speeds to run AI tasks outside the cloud will benefit, the analysts added, noting that roughly 40% of PCs running Windows 10 aren’t capable of supporting Windows 11.
“Despite an improving outlook for '24 from vendors, investors are not crediting Best Buy as a beneficiary,” the analysts said.
Store traffic, which makes up roughly 70% of Best Buy’s sales, also appears to be improving, which should more than offset slowing web traffic.
Also noting the retailer’s relative discount despite superior margins, the analysts raised their price target for the stock to $89 from $69.
“What's intriguing to us is that this discount holds today despite (1) >30% share in notebooks & home PCs as a tectonic shift in computing unfolds, and (2) paid membership of ~7M consumers that's tripled vs. pre-COVID,” they added.
Its shares traded 1.5% up at $74.98 by mid-morning on Monday.
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