Best Buy: Still King of Electronics Retail

Includes: BBY, CCTYQ
by: Tiernan Ray

Stifel Nicolaus analyst David Schick is reducing his estimate for profit per share at Best Buy (NYSE:BBY) this year and next, but he thinks it’s still the best Buy in electronics retailers (couldn’t resist) as competitors CompUSA and others are closing stores, reducing the competitive landscape.

Schick says clearance sales by competitors, as indicated in retail data from Memorial Day, suggest Best Buy’s year-over-year “comps” for its stores won’t be as high as he previously expected. For the June-ending first fiscal quarter, Best Buy’s comp falls from 3.7% to 2.8%, which means its earnings per share are looking more like 48 cents rather than a previously expected 51. Schick is taking down his full-year ‘07 EPS estimate by a penny to $3.18 and by 2 cents for 2008 to $3.71.

However, Schick is maintaining his $59 price target on the stock and ticks off why it’s still the best consumer electronics retailer: Competition is “rationalizing with CompUSA and Tweeter (NYSE:TWTR) closing stores; strong balance sheet with $6.35 per share of cash; and services business will grow thanks to Geek Squad computer repair."

Schick has a separate note on Circuit City (NYSE:CC) in which he says the company’s decade-long comeback effort is at a difficult pass, where Circuit City must try and cut expenses to boost its profit margin at the same time it is trying to increase sales growth. Consequently, “Though CC shares remain relatively cheap measured as a multiple of sales (0.2x 2007 estimated sales), we believe internal changes and difficult competitive environment will continue to work against margin inflection supporting our Hold rating.”