Barclays Cautious On Best Buy Heading Into Earnings

The brokerage maintains its second-quarter EPS estimate of $0.42, as it believes the company built substantial conservatism into its guidance of $0.38–$0.42. Wall Street expects the company to earn $0.43 a share.

The company had earlier guided to slight revenue declines in the first half of 2016, and said strength in health and wearables, home theater and appliances to offset weakness in phones, tablets and digital imaging.

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Citi noted census data indicates that CE retailer sales declined 4.1 percent year-over-year for May–July. Target Corporation TGT noted meaningful pressure in CE, with a double digit drop in comp in the second quarter, and other channel checks have indicated broad CE declines. Apple Inc. AAPL's Mac sales declined 13 percent year-over-year in the second quarter, suggesting weakness in computers.

However, the brokerage remains Overweight rated on Best Buy, as it believes in its long-term fundamentals.

"We believe the market is not properly attributing value to BBY for potential future upside from innovation and that any near-term weakness may present an attractive buying opportunity. Furthermore, we note that the DD percent FCF yield is likely to put a floor on any near-term weakness in the stock," analyst Matthew McClintock wrote in a note.

At time of writing, shares of Best Buy were up 0.21 percent at $32.66, while the analyst has a price target of $45.

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