North America

Earnings Preview: Best Buy Q3 2017 (BBY)

By: Craig Bowles

Overview

Best Buy Company, Inc. (BBY) is slated to report 3Q FY2017 earnings before the bell on Thursday, November 17th. The earnings release is expected at approximately 7:00 a.m. ET followed by an 8:00 a.m. conference call available at Best Buy Investor Relations. The consumer electronics giant is widely seen as a key barometer on the health of the consumer and the economy. Its results therefore have a historic tendency to impact the broader market, including the CME index futures contracts and other broader market gauges.

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): Company guidance is $0.43 to $0.47. The Street estimate is $0.47 (range $0.45 to $0.51) (source: Yahoo! Finance). Consensus was $0.45 three months ago.
  • Earnings Per Share (EPS): If an Adjusted/Non-GAAP EPS figure is not available, this value would compare with forecasts.
  • Revenues: Company guidance is $8.8 bln to $8.9 bln. Analysts expect a decline of 0.3% y/y to $8.85 bln (range $8.79 bln to $8.92 bln).
  • Comparable Store Sales: Company guidance is 1.0%. The current Street estimate is 1.0%.
  • Non-GAAP Earnings Per Share (EPS) Guidance for 4Q 2017: The current Street estimate is $1.58 (range $1.38 to $1.68).
  • Revenue Guidance for 4Q 2017: The current Street estimate is $13.7 bln (range $13.53 bln to $13.85 bln).
  • Price/Earnings of 12.7 compares to a 5-year average 11.4; Price/Book of 2.8 compares to a 5-year average 2.3; and Price/Sales of 0.3 compares to a 5-year average 0.2; Price/Cash Flow of 5.5 compares to a 5-year average 5.9; Dividend Yield of 2.8% compares to a 5-year average 3.0%.
  • Analysts view Best Buy with 9 (11 last qtr) Buy, 10 Hold, and 4 Sell ratings. (source: MarketBeat.com)
  • Best Buy insiders sold 492,191 shares over the last three months and 1,381,644 shares in the past year. (source: NASDAQ.com) The company’s 2015 plan to repurchase $1 billion of shares within three years was already completed in FY2016, so a new plan was announced in February 2016 to repurchase another $1 billion of shares within two years.
  • Best Buy results could impact other consumer electronics retailers, such as hhgregg (HGG). Amazon (AMZN) and Wal-Mart (WMT) have a growing presence in this area, as well.
  • Best Buy shares have a 1-day average price change on earnings of 7.06%. Options are pricing in an implied move of 8.25% off earnings.

Recent News

  • 11/07: Best Buy is now taking pre-orders for Apple MacBook Pro, according to 24/7.com.
  • 10/12: Cleveland Research expects Best Buy to report Q3 U.S. comparable sales growth of 1.8% vs. 1.0% consensus. An EPS beat is also in the cards for Best Buy ($0.50 vs. $0.47 consensus), according to Seekingalpha.com.
  • 10/04: Best Buy Co. will pay a $3.8 million civil penalty to settle charges that it sold recalled products including cameras, computers and washing machines, according to WSJ.com.
  • 09/01: Credit Suisse notes that some retailers like Best Buy “are always cheap” based on cash flow return on investment, according to Barron’s.com.
  • 08/31: Best Buy hasn’t gotten more aggressive with stores closures because it simply doesn’t have many unprofitable stores. Store size can be reduced but the stores themselves are seen as a key to digital shopping, according to TheStreet.com.

Technical Review

Best Buy found resistance at $42.50 in late 2013 and before that in 2009 and 2010, so it’s not surprising that the stock struggled after approaching that level in 2015 and again more recently. Point and figure technicians have a bullish price objective of $47 but it would be normal to underestimate the move if such a breakout were to occur after multiple years of consolidation. (Chart courtesy of StockCharts.com)

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Summary

Best Buy’s online sales are improving but Amazon now has the second largest market share of electronics sales. The Apple iPhone 7 launch should help the last two months of the quarter. Insider selling continued in an enthusiastic fashion over the past three months. The company has beaten estimates by an average of 11c the last four quarters. Estimize consensus for Non-GAAP EPS of $0.52 on revenue of $8.877 bln compares to analyst consensus of $0.47 on revenue of $8.85 bln.

 

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