Morningstar

We Maintain Our Conservative Outlook on Best Buy

The market remains ahead of the no-moat retailer's longer-term intrinsic value.

Securities In This Article
Best Buy Co Inc
(BBY)

No-moat

We believe key product cycles (smart home, TV, wearables, and gaming) and macro themes (an improving U.S. housing market driving appliance demand) will keep comps in the 3% range for at least the next two quarters before decelerating to the low single digits amid more difficult comparisons. We're also encouraged by the response to in-store smart-home departments and in-home advisor services, which should be a gradual top-line contributor. Still, with Amazon testing in-home services as part of its Kohl's partnership and with other retailers exploring similar solutions, we still have a more conservative services outlook relative to the 2021 outlook. Coupled with additional store closings in the years to come--management acknowledged that consumers are buying more small-ticket items online, thus requiring less square footage--we remain comfortable with our 2021 revenue target of $42 billion.

We're not planning material changes to our $48 fair value estimate. Fourth-quarter guidance--including revenue of $14.2 billion-$14.5 billion, domestic comps of 1%-3%, and adjusted EPS of $1.89-$1.99--gives Best Buy room for upside surprises (though potentially offset by supply chain and e-commerce investments), and an increase in planned buybacks this year ($2.0 billion from $1.5 billion) is positive for total shareholder returns. But we believe the market remains ahead of Best Buy's longer-term intrinsic value.

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The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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