Friday, December 9, 2022

Is Best Buy Stock a Better Buy Than Walmart and Target?


Third quarter earnings results have been stronger than projected and the S&P 500’s EPS outlook for the fourth quarter and fiscal 2021 continue to improve. With most of the Q3 season in the rearview, Wall Street is now focused mostly on traditional retailers such as Target TGT and Walmart (NYSE:) WMT.

Best Buy BBY falls into this bucket and it has proven it’s ready for the e-commerce age. The consumer electronics retailer is set to report its Q3 fiscal 2021 financial results on November 24. And BBY does appear worth considering and it stacks up well against both Target and Walmart.

Tech-Focused Retail…

Best Buy sells smartphones, TVs, connected-appliances, and nearly every other consumer electronics device under the sun. The firm has benefitted from remote work and school, as people were forced to purchase laptops, tablets, and more to adapt to an environment that could be here for some time, even if one of the two recent vaccine announcements prove successful. Coronavirus aside, tech devices and the broader consumer electronics space will continue to grow in our digital world.

BBY, like every other retailer, has spent the last several years working to improve its digital commerce offerings in order to succeed long-term in an age where millions of shoppers crave the convenience Amazon AMZN helped normalize. And unlike the Seattle-based powerhouse, Best Buy will be able to grow both through e-commerce and brick-and-mortar shopping, which still accounts for a vast majority of total U.S. retail sales.

Investors should know that e-commerce accounted for 16% of total U.S. retail sales in the second quarter, according to the U.S. Census Bureau. This figure was up from Q1’s roughly 12% and the year-ago period’s 11%. There is no denying that this marked big growth from recent quarters. Nonetheless, many might have expected e-commerce to be even more popular given the social distancing push.

What Else…

Last quarter, the consumer electronics powerhouse beat our estimates, with sales up 4% and adjusted earnings up 58%. Plus, BBY’s domestic comparable sales popped 5% and its comparable online sales soared 242%. This growth came despite the fact that Best Buy’s stores were open by appointment only for the first six weeks of the quarter.

Best Buy stock has jumped 36% in 2020 to triple its industry’s climb. Taking a broader view, BBY has surged 280% over the last five years to easily top Walmart, Target, and the S&P 500. Despite this growth and outperformance, BBY trades at a significant discount against some of its competitors at 16.3X forward 12-month earnings, compared to WMT’s 27.3X, TGT’s 21.5X, and its own one-year median of 18.8X.

On top of its price performance and its impressive valuation, Best Buy’s 1.85% dividend yield beats out the S&P 500’s average, the 30-year Treasury’s 1.66%, Walmart’s 1.45%, and Target’s 1.67%

Looking forward, Zacks estimates call for BBY’s adjusted Q3 EPS to jump 50% to reach $1.69 a share, with its revenue projected to climb nearly 12% higher to $10.9 billion. The retailer’s top and bottom line expansion is expected to continue in the fourth quarter and beyond.

Bottom Line

The nearby chart shows how much Best Buy’s adjusted earnings outlook has improved. This helps BBY land a Zacks Rank #2 (Buy) at the moment. BBY also boasts “A” grades for Value and Growth in our Style Scores system and its Retail-Consumer Electronics space sits in the top 20% of our over 250 Zacks industries heading into the height of the holiday season.

Best Buy stock closed regular trading Tuesday at $119 a share, which puts it just off its recent highs. And it certainly appears worth considering as a play on consumer tech and the continued growth of big retail.

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