Analyst Downgrades Best Buy, Says Retailer Is A 'Victim Of Own Success'

Electronics retailer Best Buy Co Inc BBY is one of the few retailers that has undergone a successful transformation in recent history, but the stock has become a "victim of own success," a former Wall Street bull analyst said.

The Analyst

Telsey Advisory Group's Joseph Feldman downgraded Best Buy's stock from Outperform to Market Perform with a price target boosted from $62 to $81.

The Thesis

Best Buy earned respect and admiration from Wall Street analysts after the retailer changed its format to include shop-in-shops; expanded into more relevant categories like appliances; build out an e-commerce platform; and improved the overall customer experience, Feldman said in the downgrade note. Best Buy is likely still gaining market share in every category it operates in, he said.

In the full year 2018, there are some concerns that the analyst said prompted Telsey Advisory Group to drop its bullish stance. They are:

Difficult comparisons throughout 2018 and the potential for comps to turn negative in the second and third quarters, given an absence of any "highly-anticipated" product launch.

A "more limited" potential for operating margin improvements.

A "full" valuation after a 36-percent gain in the stock over the past three months alone.

Best Buy's stock is now trading at a 16.9x NTM (next 12 months) P/E, which is above its one-year and three-year averages of 12.8x, Feldman said. While a premium valuation is justified, it is "full" at the same time, he said. 

Price Action

Shares of Best Buy were trading lower by 1.35 percent at $75.76 at the time of publication. 

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