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By Brendan Gilmartin, VP Research & Content

Best Buy (BBY) is scheduled to report 2Q 2014 earnings before the opening bell on Tuesday, August 20. The earnings are expected at 7:00 a.m. EST and will be followed with a conference call at 8:00 a.m. Best Buy is expected to garner close scrutiny this period given the recent turnaround efforts and the fact that the shares have nearly doubled since early March to a recent high just above $30.00, a level not seen since early-2011.

Outliers & Strategy

Adjusted Earnings Per Share (EPS): Best Buy is expected to post a profit of $0.12 per share for the 2Q 2014 period. Forecasts range from $0.06 to $0.22. (Source: Yahoo! Finance)

Revenues: Revenue for the period is seen dropping 8.3% from the year-ago level to $9.13 bln. Some estimates are running has high as $10.55 bln.

Comparable Store Sales: According to Zack's Institutional Research, Best Buy's comparable store sales are seen falling 0.8% for the 2Q period.

Best Buy shares are quite active on earnings. The average move in response to quarterly results is just over 6%, while the options market is currently pricing in a 8% change in the stock price.

Despite the recent run-up in Best Buy (+160% YTD), shares are trading for just 12.7x forward earnings and a mere 0.25x sales. The debt load is manageable and the company has $2.68 per share in cash on its books while paying a 2.25% dividend.

Recent News

  • 08/15: Morgan Stanley reiterated an Equal-weight rating on Best Buy ahead of 2Q earnings, according to a post on Benzinga.com. While the firm is upbeat on the recent restructuring efforts ("Renew blue") and management changes, Analyst David Gober reportedly believes that, after the 170% YTD run-up, shares appear fully valued at current levels.
  • 08/14: Barclay's raised its price target on Best Buy from $30 to $38 and reiterated an Overweight rating, according to a post on Barron's Online. The firm reportedly expects Best Buy to top consensus estimates for the second quarter, thanks in part to growth in the mobile phone segment, computer sales, and in-store designs and partnerships aimed at increasing traffic in its stores.
  • 07/01: Credit Suisse reportedly boosted its price target on Best Buy from $32 to $40, according to Barron's Online. The positive view is based in part on recently expanded selling agreements with Samsung (SSNLF.PK) and Microsoft (MSFT).
  • 05/04: Best Buy authorized payment of a regular quarterly cash dividend of $0.17 per share. The current yield is 2.25%.

Technical Review

Best Buy shares have been breaking out in recent months, climbing to the highest level since earlyd-2011, following a 160% YTD increase. The recent high of $32.17 (8/14) represents the only near-term resistance in the event of a much stronger than expected earnings release. Conversely, initial support is just below the 20-Day SMA near $31.00, with downside risk to $28.00. (Chart courtesy of StockCharts.com)


(Click to enlarge)

Summary

Best Buy shares have been on a tremendous run YTD, rising 160%, benefiting from initial upbeat results from its turnaround efforts ("Renew Blue"), cost-cutting to support margins, a solid management team, and an increase in store traffic. Recently expanded alliances with Samsung and Microsoft are also helping to lift the shares higher. But given the magnitude of the recent run-up, Best Buy could be poised for a pullback, barring a stellar earnings release.

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Source: Earnings Preview: Best BBuy 2Q 2014