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BestBuy (NYSE:BBY) is scheduled to report 2Q 2012 earnings before the opening bell on September 13 at approximately 8:00 a.m. EST with a conference call to follow at 10:00 a.m. EST. The consumer electronics giant is widely seen as a key barometer on the health of the consumer and the economy. Its results therefore have a historic tendency to impact the broader market, including the CME index futures contracts and other broader market gauges.

Outliers & Strategy

  • Market Reaction: 06/14/2011: S&P E-minis increased from 1275.00 prior to the BBY 1Q 2012 earnings release to 1276.50.
  • Market Reaction: 03/24/2011: S&P E-minis increased from 1300.50 prior to the BBY 4Q 2011 earnings release to 1302.50.
  • Market Reaction: 12/14/2011: S&P E-minis decreased from 1243.75 prior to the BBY 3Q 2011 earnings release to 1240.00.
  • Key measures:
    • Adjusted Earnings Per Share: Depending on whether there were extraneous accounting items during the quarter, BestBuy provides an Adjusted EPS figure that is comparable to published estimates.
    • Earnings Per Share: If an Adjusted EPS figure is not available, this value would compare with forecasts.
    • Comparable Store Sales: A negative comp may already be priced in at these levels.
    • Adjusted Earnings Per Share Guidance & Revenues Guidance: Look for BestBuy to possibly update guidance for FY2012. The company previously projected Adjusted EPS toward the high end of the range of $3.30 to $3.55 on revenues of $51 to $52.5 bln. Estimates are $3.48 and $5.20 bln respectively.
    • BestBuy is expected to earn $0.54 per share in 2Q 2012, down from $0.60 in the prior year (Source: Yahoo Finance). Estimates range from $0.44-0.61. Revenues are seen rising a mere 1.7% y/y to $11.53 bln.
    • BestBuy is trading at 8.0x earnings, well below the five-year average of 14.5x, and a mere 6.7x future profits, resulting in a Forward PEG of just 0.71, implying the shares are trading at a discount to the earnings growth rate.
    • According to Revere Data, the following suppliers derive more than 10% of revenues from Best Buy: Net Gear (NASDAQ:NTGR) and Skullcandy Inc. (NASDAQ:SKUL).

Recent News

  • 09/06: Piper Jaffray downgraded BestBuy to Neutral and cut the price target to $26, citing concerns over its position in the consumer electronics product cycle and narrower margins. Benzinga.com
  • 06/21: Best Buy authorized a new $5 billion share repurchase program.
  • 06/15: Best Buy authorized payment of a regular quarterly cash dividend of $0.15 per share. Shares are now yielding 2.61%.

Technical Review

BestBuy shares are off more than 25% from the July highs, recently dipping to a 52-week low of $23.00, a level not seen since March 2009. That will be a key support level to watch in the event of a disappointing release. Conversely, there is initial resistance at the 20-Day SMA near $24.50, followed by $25, $26, and the 50-Day SMA near $27. (Chart courtesy of StockCharts.com)

[Click to enlarge]

Summary

BestBuy shares have fallen to 2 ½ year lows in the past several weeks amid concerns over slower consumer spending, a softening global economy, higher input costs, and narrowing margins. Despite this cautious backdrop, however, the company is buying back shares, pays an attractive dividend, and trades at less than 7x forward earnings. With that said, much of the anticipated weakness may be priced in at these levels, leaving the door open for a move higher on moderate earnings results.

Source: Best Buy Earnings Preview