Best Buy Shares Fall After Goldman Downgrade

Shares of Best Buy Co Inc BBY have tumbled as much 4 percent after Goldman Sachs downgraded the stock to Neutral from Buy and removed it from the Americas Buy List.

Analyst Matthew Fassler said, "[W]e expect a sluggish wireless market to overshadow ongoing strength in TV sales, driving a choppy sales performance, particularly in the first half of 2016, when our sales and earnings forecasts stand below consensus."

Related Link: Goldman Sachs Abandons Its Conviction Buy On Best Buy

The brokerage's earlier Buy thesis was based primarily on the anticipated strength of the TV cycle, coupled with Best Buy's powerful position in the TV space as 4K/UHD technology gains traction; this dynamic played out better than expected, as the electronics category beat Goldman's expectation for the year.

However, the analyst said that mobile/computing disappointed, with implications for the forward as well, given an increasingly mature wireless market, an absence of new product, and an arguably fading imperative for Best Buy as a destination for phones as smartphone penetration has increased.

"We believe in the sustainability of BBY's model, but acknowledge that the stock moves with product cycles, given a mature store base, the impact of price transparency on margin, and several years of cost cuts under its belt," Fassler noted.

However, the analyst raised his 12-month price target to $33 from $32 to reflect a higher market multiple (15.4x vs. 14.8x).

Shares of Best Buy have dropped 24 percent in the last one year. They have been trading in the range of $25.31–$42.00 during the past 52 weeks.