Proactive Investors - Best Buy Co Inc (NYSE:BBY) shares traded higher after the consumer electronics retailer was upgraded to a ‘Buy’ rating by analysts at UBS.
The analysts also boosted their price target on Best Buy from $85 to $106.
Best Buy shares were up 4.2% at about $91 in the early afternoon on Monday.
“We upgrade Best Buy to ‘Buy’ from ‘Neutral’ as we believe the shares offer a compelling risk-reward to invest behind several potential paths to outperformance,” the analysts wrote in a note.
In the next 18 months, the bank’s analysts see potential upside being driven by an improvement in housing trends, because appliances have an 85% correlation with this factor, and a pending electronics replacement cycle, which typically occurs every four to seven years.
They also see higher levels of product innovation including from AI and growing sales of new categories such as e-bikes and furniture.
These factors should come together to drive a recovery in Best Buy’s sales in the second half of 2024 and into 2025, the analysts wrote.
“Best Buy’s restructuring efforts should lead to significant earnings torque as comparisons improve,” they added.
“Its employees per store has fallen from 102 in 2020 to 77 last year. Even if this rises to 83 and Best Buy comparisons up 3% next year, it could drive earnings per share (EPS) of $7.30 plus, versus the consensus of $6.70 today.”
The analysts added that they believe the stock is pricing in earnings that are below Best Buy’s potential.
“On our target multiple of 14.5x, the current share price would imply the company earns roughly $6 of EPS in 2025, versus the UBS estimate of $7.30,” they wrote.
“While the stock has had a decent bounce off the bottom, we think there’s more to go and increase our price target to $106.”