Jefferies Maintains Hold Rating Ahead Of Best Buy Earnings Next Week

Jefferies is maintaining its Hold rating on Best Buy BBY. Consensus sales estimates imply about a 2% comp store sales gain, but we think informal expectations have been coming down and margin expectations are high. If sales remain lackluster on strong margins and heavy share buyback, Jefferies believes shares stay within a multiple range of 10-11x. Jefferies maintains its Q3 EPS estimate of $0.58, compared to the $0.61 consensus estimate. Like last quarter Jefferies suspects any upside to its estimate would likely be at the gross margin line if it is directionally right on comp store sales estimate of flat for the overall company. Contributors to stronger gross margin probably include better penetration of the high margin mobile business, better service plan revenue, and a lower mix of computers, which Jefferies thinks trended softer again as iPad sales cannibalized laptops. Jefferies has a Hold rating on BBY and a $38 PT BBY closed Thursday at $42