Best Buy Compares Favorably To Walmart, But Is 'Much Cheaper'

Investors looking for exposure to the retail sector may have been scared to invest in Best Buy Co Inc BBY amid the growing competition from both online and brick-and-mortar peers. But this shouldn't be the case, at least according to analysts at Loop Capital Markets.

Loop Capital's Anthony Chukumba maintains a Buy rating on Best Buy's stock with a price target boosted from $64 to $72. Chukumba said the company has now proven itself to no longer be a "secularly challenged retailer."

Best Buy Is More Like Walmart, Less Like GameStop

Best Buy shouldn't be grouped in the same category as troubled retailers, including GameStop Corp. GME, Chukumba argued. Instead, Best Buy should be viewed as a retailer that boasts a market leading status although with a slow growth profile. Other retailers that offer a similar profile such as Costco Wholesale Corporation COST and Home Depot Inc HD are trading in a range of 18x to 31x consensus fiscal 2017 diluted earnings per share while Best Buy's stock is trading at a multiple of less than 15x.

Chukumba also compared Best Buy's stock to Wal-Mart Stores Inc WMT's stock which is one of the least expensive retailers.

Best Buy compares favorably to Walmart across many metrics, including a much better operating margin expansion and earnings growth profile over the past few quarters, Chukumba emphasized. As such, at the very least Best Buy's stock should trade-line with Walmart's multiple which stands at 18.3x.

As such, the analyst's revised price target of $72 per share implies a multiple of 18.0x on his 2017 diluted earnings per share estimate.