Wall Street Is Still Buying Best Buy

Shares of Best Buy Co Inc BBY surged higher by more than 12 percent during Tuesday's trading session after the company reported its second quarter results earlier in the morning. Morgan Stanley: Q2 Strength Makes Guidance ‘More Likely' Simeon Gutman of Morgan Stanley commented in a note that Best Buy's top-line strength improves the likelihood that the company's comps will be positive in the back half of 2015. The analyst even suggested that "modestly" positive comps should allow the company to match consensus estimates moving forward. Gutman continued that Best Buy's EBIT dollars are expected to fall by 2.4 percent in the back half of 2015, but the main focus will be on comps. In fact, the analyst argued that the company could even post upside to the consensus estimates of 0.8 percent as the market continues to under-appreciate the strength of 4K TV sales. Finally, Gutman stated that expectations for Best Buy remain "low" and merely matching future estimates could "actualize value" in the stock – similar to what was the case in the second quarter. Shares remain Overweight rated with a price target lowered to $40 from a previous $43 to reflect a one-turn reduction in the analyst's target multiple to 14x given "increased confidence in the next six months' product cycle" but "less comfort in out year product drivers." Raymond James: Company Improvements Offsetting Industry Challenges Dan Wewer of Raymond James commented in a note that Best Buy's company-specific improvements are beginning to offset the inherent challenges facing the consumer electronics industry which places it in a better position to deliver higher than expected earnings through next year. Wewer continued with five catalysts that should support Best Buy's stock moving forward: 1) potential accelerating revenue growth, 2) inventory productivity showing signs of recovery, 3) improving earnings outlook internationally, 4) attractive valuation, 5) earnings per share accretion through stock buyback program. Wewer expanded on his attractive valuation point, noting that metrics such as EV/EBITDA, P/E, and FCF yield places the stock "among the most compelling" within the hardline retail group. The analyst added that the stock's current valuation metrics should further recover if it delivers on improved sales and earnings per share growth during the next two quarters. Shares were upgraded to Strong Buy from Market Perform with a newly established $40 price target.