Earnings report: Is Best Buy a good buy?
Today's Financial News - Posted March 26, 2009
Best Buy (NYSE:BBY) is soaring today on news that the future looks bright. With Circuit City out of the way, can the company continue its neck-breaking growth?
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): It is amazing what the defeat of a long-time competitor can do to a company’s outlook. Just ask Best Buy (NYSE:BBY).
Shares of the company are making double-digit gains today after the company released its first earnings report and forecast since the demise of Circuit City. With the rival out of the way, things are looking up for Best Buy.
Let’s start by looking at the past. The fourth quarter was hard on almost every retailer. Best Buy was no exception. This time last year, it reported earnings of $737 million. This year, the figure is just $570 million, and that includes a boost from more than 200 new stores.
After one-time costs are slashed out of the equation, the company’s Q4 per-share profit was $1.61. Analysts estimated the figure at just $1.40.
While that is good news, the real smile-maker comes from the company’s outlook. Instead of the $2.45 per share in fiscal 2010 profits analysts were hoping for, officials surprised the Street with earnings ranging from $2.50 to $2.90.
If Best Buy can continue its triple-digit cell phone sales growth, or if it can boost its computer-repair sales, we can expect to see earnings at the higher end of the scale.
Shareholders finally exhale
The electronics retailer has done a fairly good job at containing costs by cutting its workforce and cutting other expense. Even so, Best Buy saw its margins shrink during the fourth quarter from 24.6% to 23.7%.
One important figure to watch in the next several earnings reports will be the company’s share of the market. Best Buy controlled 22% at the end of January, up 1.2%. With Circuit City out of the way, expect that figure to jump markedly over the next year. If it fails to capitalize in this area, shareholders will pay the price.
For now, Best Buy looks to be in a healthy position. It has strong cash flow, a growing share of the market, and is in an industry poised for a rebound.
If you own shares of the company, the gut-clenching days are in the past. If you are looking to buy shares of the company, hold off for now. Buy on dips and limit your purchase to levels below $36.
It is amazing what a little less competition can do for a business.
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