Best Buy Co. Inc. (NYSE: BBY) is set to report earnings this Thursday. It is a safe bet that its investors and market observers will be watching closely for how this painful turnaround story is progressing. Best Buy shares were at one point up more than 200% from its lows, but the latest report hurt bad enough that shares are back down 42% from their post-recovery peak.
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The real questions are whether the stock is fairly priced now and whether the bar has been set low enough. And then there is the wild card that the most recent quarter is one of the weakest points in the calendar’s business cycle. To prove that point, the consensus earnings per share estimate from Thomson Reuters for the quarter is only $0.20, versus the annual estimate of $2.20 per share.
Best Buy is also expected to report revenue of $9.20 billion. This would represent a drop of nearly 2% from a year ago.
With shares trading at $25.70, the forward valuation is very cheap on the surface at only 11.7 times expected earnings for this year. Then there is the consensus analyst price target of $33.10, implying almost 30% of perceived upside.
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Best Buy has one extra bonus that is often omitted when the critics are out bashing the company, and that is that it has a dividend yield of about 2.7%. This is higher than most retailers, in most cases it is considerably higher than other retailers in the S&P 500.
And that $25.70 share price also compares to a 52-week range of $22.15 to $44.66, so the stock’s turnaround froth has been taken out of it all over again.
The long and short of the matter is that Best Buy’s prior stock drop should have buffered investors from as much risk and losses. The flip side of that is that Best Buy also has a very negative bias against it by investors. We would also warn investors that guidance will matter more than looking back. After all, this was the throwaway quarter.
Think of the good news: at least it isn’t RadioShack.
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