Wedbush Maintains Neutral Rating, $37 Target On Best Buy Ahead Of Q3 Results

• The share price of Best Buy Co Inc BBY has declined 17.8 percent year-to-date, hitting a low of $29.27 on August 24.
• Wedbush’s Michael Pachter has maintained a Neutral rating and price target of $37 on the company.
• Pachter expects the company to report robust Q3 results, and mentioned that there has been strong execution from management since Best Buy expanded its margins and domestic comp store sales.

Analyst Michael Pachter stated that the company was slated to report its F3Q16 results before market open on November 19, in line with the estimates and guidance. Revenue and EPS are also expected more or less in line with the consensus.

Gross margin expansion is expected at 30 bps, with almost flat operating margin, in-line with the guidance. The robust growth in appliances is expected to continue going forward.

The company appears focused on gaining market share by “developing its appliance category and aggressively expanding its Pacific Kitchen & Home store-within-a-store concept,” with market share gains expected at the higher-end of the major appliances segment.

"We think strength in appliances was partially offset by continued weak demand for tablets and services revenue; warranties likely continue to be under pressure from both pricing and lower demand."

“Although anecdotal, we have seen a marked increase in direct email and online promotion, which likely drove traffic in Q3. We did not see aggressive TV ad spend, suggesting that overall marketing costs remain under control,” Pachter stated.

According to the Wedbush report, the “acid test” for the company’s turnaround would be Best Buy’s ability to compete profitable during the holiday season.