Best Buy's a Buy - Barron's

Best Buy is a buy, Barron's says.

Sales of video game products continue to soar despite slower consumer-spending -- especially sales of high-margin software to keep owners of Sony's (SNE) PS3, Nintendo's (NTDOY.PK) Wii and Microsoft's (MSFT) Xbox 360 busy. The recent resolution of the HD disc format war (victor: Sony's Blu-ray) should fuel sales from hold-outs. Also to Best Buy's (BBY) benefit is the looming (Feb. 17/09) government deadline to switch to digital TV.

Q3 comps at BBY rose 6.7%, vs. a 5.6% drop at rival Circuit City (CC); total revenue grew 17.2% over the quarter vs. CC's 3.1% revenue loss. Best Buy has a strong Canada presence, and is expanding into China and other emerging markets. And one can't help but like BBY's receiving of the coveted right to sell Apple's (AAPL) red-hot product line through "store-within-a-store" Apple Shops. By the fall, there should be about 600 Best Buy Apple Shops.

The sector will do much better than many think, Gabelli Global portfolio manager Larry Haverty says, citing GameStop's (GME) recent 46% jump in quarterly earnings. "The soft economy gives you the opportunity to buy a wonderful company and a good franchise with a good theme," investment advisor Curt Scott says. "It's a play on the digital economy without buying a tech company." At $42.41, Best Buy buyers get shares at a 20% discount to December highs.

Comments

[Lisa]

BBY is a big bet on the consumer. Gutsy stock pick in this environment.

[billddrummer]

BBY is still the best run consumer discretionary company, and it's aggressive store opening plans for FY 2009 will provide an excellent platform to reap the benefits of a renewed consumer post-recession. And despite a slow ramp-up in China (which resulted in closing the Beijing office), the investment there will eventually contribute 10-15% to operating cash flow over the next 2 years. I was expecting China to be more dynamic, but the vagaries of culture have apparently gotten in the way.

Definitely a hold, but watch for earnings to be propelled forward in the 3rd quarter of fiscal 2009.