The conventional view of the consumer electronics retailers lately has been that they would continue to struggle with the huge slide in prices for their most popular offering: flat-screen televisions. But Strasser thinks the Street has become too negative - and he thinks Best Buy has figured out a strategy to stabilize the situation.
The [fourth quarter] inventories and rush to sell caught retailers such as BBY by surprise, and also lowered BBY’s rate of selling warranties, services and peripherals,” he writes. “BBY is now more prepared and making adjustments, cutting some expenses, and will increase its selling rate on profitable ancillary products…We view potential upside of about 20% and downside risk of about 8%, and that improved execution will be most apparent in [the second half of 2007]. Expectations are low, sentiment around TVs is negative, and there is widespread belief that margins will collapse. We disagree, and believe total TV margins will be up year-over-year in 2007.
Best Buy shares this morning are up 44 cents at $50.80.
BBY 1-yr chart