Will Best Buy Bounce Back From A Brutal January?

| About: Best Buy (BBY)

Best Buy Co. (NYSE:BBY) is set to report FQ4 2014 earnings before the market opens on Thursday, February 27th. Best Buy is an American multinational consumer electronics and entertainment retailer which operates in the United States, China, Canada, Mexico, and Puerto Rico. This holiday season has been difficult for retailers who have cited poor weather as a major factor responsible for lower than average customer turnout. Best Buy has had a particularly rough season as the company announced in January that same store sales had fallen nearly 1% despite heavy price discounting to draw in customers in the face of the competitive retail sales environment. The price reductions will pressure Best Buy's margins and reduced traffic will adversely affect revenue. On news of the announcement in January quarterly expectations plummeted and the BBY stock price sunk by over 25% accordingly. Here's what investors expect from Best Buy on Thursday.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.image

(Click Here to see All Estimates for Best Buy)

The current Wall Street consensus expectation is for BBY to report $1.01 EPS and $14.683B revenue, while the current Estimize.com consensus from Buy Side and Independent contributing analysts is $1.07 EPS and $14.759B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Best Buy to beat the reduced Wall Street consensus on both EPS and revenue.

Over the previous 5 quarters the consensus from Estimize.com has been more accurate than Wall Street in predicting Best Buy's EPS and revenue 4 times and once respectively. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing an average differential for Best Buy.image

The distribution of estimates published by analysts on the Estimize.com platform range from 76c to $1.22 EPS and $20.852B to $22.000B in revenues. This quarter we're seeing a large distribution of estimates for Best Buy.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings.image

Over the past 4 months Wall Street reduced its EPS consensus from $1.67 to $1.01 while the Estimize community fell from $1.12 to $1.07. Over the same period of time the Wall Street revenue consensus decreased from $14.979B to $14.683B while the Estimize consensus rose from $14.688B to $14.759B. Timeliness is correlated with accuracy and downward analyst revisions at the very end of the quarter are often a bearish indicator.image

The analyst with the highest estimate confidence rating this quarter is David Magee from SunTrust Bank, who goes by the handle Suntrust_14 and projects $1.20 EPS and $14.750B in revenue. In the Winter 2014 season Suntrust_14 is rated as the 249th best analyst and is ranked 751st overall among over 3,900 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case Suntrust_14 is expecting Best Buy to beat the Estimize consensus on EPS but come up slightly short on revenue.

This quarter Best Buy is under heavy pressure to meet the significantly reduced expectations. Although the damage has already been done to the share price, contributing analysts on the Estimize.com platform are expecting Best Buy to exceed the diminished expectations from Wall Street. Beating the lower target set for this quarter is the first step for Best Buy to get back on track.

Disclosure: None