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Wedbush: Best Buy Has Strong Growth Formula, But Higher Tariffs Are Looming Issue

Wedbush: Best Buy Has Strong Growth Formula, But Higher Tariffs Are Looming Issue

While Best Buy Co Inc (NYSE: BBY) turned in another solid quarter Thursday, its success could be threatened by rising tariffs, according to Wedbush. 

Best Buy reported first-quarter earnings of $1.02 per share, well ahead of the Street’s 86-cent estimate. Revenue was essentially in line with expectations.

The Analyst

Michael Pachter maintained a Neutral rating on Best Buy with a $71 target price.

The Thesis

The big box electronics and home retailer seems to have found a formula for long-term growth, Pachter said in a Friday note. (See his track record here.) 

The coming tariff increase in the U.S.-China trade war is a problem, the analyst said. Best Buy was able to stock inventory before the current 10-percent tariffs took effect and work with vendors on production shifts out of China, he said.

But it’s unlikely Best Buy can easily absorb 25-percent tariffs, and this likely means higher consumer prices, something that's been factored into Best Buy’s 2020 guidance, Pachter said. 

Another issue: competition from e-commerce giant Inc. (NASDAQ: AMZN).

Best Buy also sells big items like appliances that people still tend to buy in stores, and it has a service element to its business, the analyst said. 

“While we remain concerned about competition from Amazon, we think Best Buy can continue to grow in the near-term from a higher mix of services and appliances." 

Price Action

Best Buy shares were down more than 2 percent at $64.51 at the time of publication Friday. 

Related Links:

Best Buy Q1 Earnings Beat Analyst Estimate

Brexit, China Fears Both Appear To Weigh On Market Early Despite Strong Best Buy Results

Photo by Tdorante10/Wikimedia

Latest Ratings for BBY

Apr 2019UpgradesHoldBuy
Mar 2019UpgradesPerformOutperform
Mar 2019Initiates Coverage OnIn-Line

View More Analyst Ratings for BBY
View the Latest Analyst Ratings

Posted-In: consumer electronics Michael PachterAnalyst Color Earnings News Price Target Reiteration Analyst Ratings Best of Benzinga


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