A Catastrophe For hhgregg's Could Be Catalyst For Best Buy

Anthony Chukumba of Loop Capital says Best Buy Co Inc BBY could be a primary beneficiary of potential bankruptcy filing of peer hhgregg, Inc. HGG.

There were several media reports saying hhgregg is preparing to file for bankruptcy as the company continues to struggle with declining sales and mounting losses.

“We believe Best Buy would be the major beneficiary of an hhgregg liquidation, which we estimate could add as much as $0.21 of annual diluted EPS, or 6.0% accretion to the current consensus F2017 forecast,” Chukumba wrote in a note.

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The analyst believes an hhgregg bankruptcy filing would most likely result in a complete liquidation of the chain instead of a restructuring. In that case, Best Buy may buy several hhgregg stores due to location advantages and similarities in product assortment.

“We believe former hhgregg shoppers would be more likely to migrate to Best Buy stores than large format discounters, home improvement chains, or online given the latter's more similar store format and customer service levels,” Chukumba added.

Chukumba reiterated his Buy rating and $58 price target on Best Buy shares, saying the company could still pick up $0.10 of annual EPS even if hhgregg successfully reorganizes and close only 100 stores.

At last check, shares of Best Buy fell  4.78 percent to $43.92.