On Friday, Telsey Advisory Group adjusted its outlook on Best Buy Co. Inc. (NYSE:BBY), increasing the 12-month price target to $85, up from the previous $75, while maintaining a Market Perform rating on the stock.
The adjustment comes in the wake of Best Buy's fourth quarter earnings for fiscal year 2023, which saw a roughly 5% increase in earnings per share (EPS) to $2.72. This figure surpassed the FactSet consensus of $2.52 and Telsey's own estimate of $2.59.
The electronics retailer's stronger-than-anticipated sales and profitability were attributed to effective execution and cost control measures. Best Buy also provided guidance for fiscal year 2024 that aligns with analysts' expectations.
Despite a challenging retail landscape marked by softer consumer spending, Best Buy's fourth quarter comparable store sales (comp) were better than anticipated at 4.8%, compared to the FactSet expectation of a 5.4% decline and Telsey's forecast of a 6.8% drop.
Looking forward, the company estimates that comparable store sales for both February and the first quarter of 2024 will be around a 5% decline. However, projections suggest an improvement throughout the year with industry demand expected to stabilize.
Best Buy's guidance indicates that comp will sequentially improve each quarter, finishing the year between a 3.0% decline and flat, versus the FactSet consensus of 0.0%. This leads to an EPS guidance for 2024 in the range of $5.75 to $6.20, with FactSet's consensus at $6.16.
Telsey highlighted Best Buy's strategic advantages, including a sound strategy, a strong management team, and superior omnichannel capabilities compared to many competitors. The retailer's optimization of real estate and new revenue streams, such as membership and health services, are also seen as positive factors.
These elements are expected to position Best Buy favorably for growth once the industry recovers. The revised price target is based on applying a price-to-earnings (P/E) multiple of approximately 12 times to Telsey's 2025 EPS estimate of $6.80.
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