Best Buy: Time to Shop Elsewhere, Morgan Says

Morgan Stanley analyst Gregory Melich Friday morning cut his rating on Best Buy (BBY) to Underweight from Equal Weight, noting that the consumer electronics retailer’s stock has outperformed the S&P 500 by 80% since last October. At Thursday’s close at $39.04, he says, the stock is discounting a quick recovery of margins to 5% or higher - but he thinks they will stay below 4.5% into 2010. Melich says the company’s “survivor” status remains, but that the stock has become too risky.

On a surprising note, Melich contends that first quarter market share data for TV sales suggests that Circuit City’s TV sales appears to have been split between Wal-Mart (WMT) and Amazon (AMZN), rather than to Best Buy. He notes that while CC’s TV market share fell in half in Q1 for obvious reasons, BBY lost share as well, with WMT gaining ground at the low-end of the market and AMZN picking up business at the high end.

Melich adds that while the Street sees EPS for the February 2011 fiscal year growing to $3.02 a share from an estimated $2.77 in FY 2010, he thinks the number will actually shrink to $2.55, from $2.65. “The main drivers of this risk appear to be outside the company’s control,” he writes, including the direction of ASPs in laptops - hello, netbooks! - and TVs. He also notes that consumer electronics share of wallet has typically slipped for four years around a U.S. recession.

BBY Friday morning is down 94 cents, or 2.4%, to $38.10.

Original post

Comments

[dgdatta]

The Analyst note timing is intriquing as next week is option expiring..Also stock has started becoming week since 7th of May giving rise to suspicion abt leakage of Information as on 7th When market went up nicely..BBY felt..
So some one shud investigate the whole episode of downgrading..

cheers

Dilip New Zealand..

Dicl.I have neutral trading in Option..

2009 May 08 03:25 PM

[notsosmart]

if you can afford it consider buying from your local appliance family operation.they will be a great help if things go wrong.(i have no affiliation with any).i speak from experience.the whining & complaining if you deal with these giants is your own fault.

2009 May 09 12:54 PM

[Michael Comeau]

Man, are any of those independent stores still around? Large specialty stores with great service (places like B&H Photo) will always survive, but I've seen so many little guys go out of business in the past decade.


On May 09 12:54 PM notsosmart wrote:

> if you can afford it consider buying from your local appliance family
> operation.they will be a great help if things go wrong.(i have no
> affiliation with any).i speak from experience.the whining & complaining
> if you deal with these giants is your own fault.

2009 May 11 10:24 AM

[BillBrown]

I doubt CC's "high-end sales" went to AMZN. What's the basis for that logic, that one went down and the other went up? How many high-end sets, which tend to be very large, is Amazon selling and shipping around the country at huge cost?

More likely, consumers held back purchases of such product in Q1 amid epic environmental uncertainty and lost confidence as they surmise a bleak future. That WMT grew on the low-end makes sense ... but without sales figures overall, to keep scale (with AMZN's reported performance) in any kind of balanced perspective.

2009 May 11 11:14 AM