Best Buy Stock Poised for Turnaround
Best Buy, a leading retailer of consumer electronics, has experienced a significant decline in its stock this year due to weakening demand. However, Goldman Sachs analyst Kate McShane believes that the company's shares are set for a turnaround.
In a recent upgrade, McShane raised Best Buy's stock rating from Neutral to Buy and increased the price target from $79 to $85, indicating a potential upside of about 21% from the current price of $70.53.
During 2023, Best Buy faced concerns that consumers were buying fewer electronics after stockpiling during the pandemic. The latest retail sales report confirmed this trend, with sales at electronics and appliance stores declining by 2.2% year over year.
Nevertheless, McShane highlights that there are promising signs for Best Buy in 2024. The company's management team has expressed a more optimistic outlook, particularly regarding the demand for TVs and laptops. This positivity may stem from the need for replacement purchases, as some products bought in 2020 and 2021 are reaching the end of their lifespan.
"We see this potential demand driver carrying into next year, which could help stabilize overall demand in a challenging consumer environment," states McShane. She also suggests that this improved demand could lead to stronger revenue growth in the coming year.
Additionally, Best Buy has experienced seven consecutive quarters of declining comparable sales, setting a low bar for performance in the upcoming year. This will likely elicit positive responses from investors if the company exceeds expectations.
Furthermore, Best Buy's valuation has dropped alongside its stock price decline. FactSet data indicates that the stock currently trades at 10.6 times forward earnings for the next year, below its five-year average of 12.3 times.
According to McShane, the stock's current valuation fails to acknowledge the potential for this positive change in direction.
As of Thursday trading, Best Buy's stock has increased by 0.4% to $70.50.
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