Best Buy ‘s quarterly beat and guidance raise on Thursday was good for a 15% pop in the stock as investors rewarded better execution and the promise of wider adoption of AI devices and lower interest rates. Revenue in the company’s fiscal 2025 second quarter fell 3.1% year over year to $9.29 billion in the three months ended July 29, outpacing the $9.24 billion expected by analysts, according to estimates compiled by LSEG. Adjusted earnings per share of $1.34 rose 9.8% on an annual basis, topping the $1.16 predicted by analysts, LSEG data showed. BBY YTD mountain Best Buy YTD Thursday’s advance sent Club stock Best Buy back above $100 and above our price target of $95. We continue to see further upside ahead, so we’re increasing our PT to $110 per share. We are, however, keeping our 2 rating for the time being, in deference to the speed and magnitude of the stock’s recovery since its swoon earlier this month. Bottom line We see four reasons to be excited about Best Buy’s future: (1) improved profitability, (2) management’s efforts to enhance the in-store experience, (3) signs that generative artificial intelligence will, indeed, drive upgrades of personal computers and mobile devices, and (4) our own view that big-ticket items such as TVs and appliances will get a boost from lower rates leading to more people buying homes and needing to fill them up. While bullish, we acknowledge there’s still work to be done. On the call, Best Buy CEO Corie Barry, said that growth in tablets, computing, and services, was more than offset by declines in appliances, home theater, and gaming. That sluggishness in home entertainment and appliances is largely in line with what we were expecting following quarterly updates from housing-related retailers like Home Depot , Lowe’s , and Williams-Sonoma . However, it’s an area in which we expect to see improvement as Federal Reserve rate cuts lower mortgage rates, which will help drive new home formations. Fiscal Q2 same-store sales, or comps as they’re known in retail, dropped 2.3% from the year-ago period. That was not as bad as the expected decline of 3.2% or the previous quarter’s 6.1% decline. On the post-earnings conference call, management said that July comps were the best of the reported quarter and that August, the first month of the current quarter, was tracking to be about flat. The company sees comps in its fiscal third quarter declining 1%, which was slightly worse than estimates. Best Buy Why we own : We took a position in Best Buy because we believe it will prove to be a go-to destination for consumers looking to upgrade hardware, much of which was purchased during Covid, to new AI-powered devices. Computer and mobile device lifecycles tend to be about four years, which is how far removed we are from the start of the pandemic when everyone was building out their home offices. In the meantime, we’re happy to stay patient as the thesis plays out thanks to a healthy annual dividend yield. Competition :…
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