Best Buy Retail Winner in Tough Economy

Electronics retailer Best Buy (BBY) was in Wall Street's cross-hairs Wednesdaymorning and certainly had a tough act to follow. After the April Fool's day 400 point rally in the Dow, Best Buy was set to report its quarterly numbers and they turned out to be no joke indeed. In a start to the year plagued with recession and consumer spending worries, Best Buy reported profits of $1.71/share or $737Million.

That was compared to last year's $1.55/share and $763Million profits. The big share repurchase program helped the numbers compare favorably year-over-year. Yes profit was down fractionally, but analysts were expecting even lower results with forecasts of $1.65/share earnings. Revenue came in above expectations also ($13.42Billion v $13.19Billion expected). Just goes to show that the consumer isn't dead just yet!

While 2008 may prove to be challenging in a tightening US economy, Best Buy provided some optimistic guidance numbers that pleased the analysts on Wall Street. The company gave a range of $3.25 to $3.40 per share in earnings on $43Billion to $44Billion in revenues. Analysts expected $3.31 on $43Billion in revenue. Not bad considering management basically came out and said that the year was as turbulent as any other they've ever seen. So anytime a company predicts a hard year but maintains almost 20% growth, investors need to stand up and take notice. Especially when that company's shares currently price at a Forward P/E of just over 13. Meaning that the Price to Earnings Growth number stands at a tiny 0.66.

All those metrics point to Best Buy as a potential steal at these levels, and in fact Standard & Poors notes that Best Buy is among the list of most undervalued growth names. However, as  with all things in this marketplace, there's a downside. If the US economy declines further, devaluing the US dollar--in the face of quick-rising essential commodities, ala oil--Best Buy, like most retailers will feel the shoppers cash-pinch. And with Best Buy essentially selling non-Essentials, this type of economic outlook is the management's worst fear.

At the end of the day though, if there's an electronics retailer to own, it is the one that is wiping the floor with it's main competitor, namely Circuit City (CC), which has reported quarter after quarter of losses.

Disclosure: Author owns BBY