Best Buy Would Be Major Beneficiary Of An hhgregg Liquidation

Hhgregg, Inc. HGGGQ has filed a form 8-K stating its plans to commence going-out-of-business sales in the event the company is unable to find a buyer by Friday. Best Buy Co Inc BBY would be “the major beneficiary of an hhgregg liquidation,” Loop Capital’s Anthony Chukumba said in a report.

While reiterating a Buy rating and a price target of $58 for Best Buy, Chukumba raised the diluted EPS estimate for fiscal 2017 from $3.65 to $3.77, reflecting the sales transfer from closed stores. The analyst added, however, that hhgregg’s liquidation sales could exert pressure on Best Buy’s performance in the first half of 2017.

Best Benefit To Best Buy

A location-by-location analysis of hhgregg's stores indicated that more than 90 percent had a Best Buy “within five miles (and in most cases, within 1–2 miles),” the analyst noted. He added that over 90 percent of hhgregg's product assortment could be found at Best Buy.

“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 former's more similar store format and customer service levels,” Chukumba commented.

Hhgregg's liquidation would be a positive catalyst for Best Buy’s shares, which are currently trading at a significant discount to its peer group.

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