Wedbush: Best Buy Has Strong Growth Formula, But Higher Tariffs Are Looming Issue

While Best Buy Co Inc BBY turned in another solid quarter Thursday, its success could be threatened by rising tariffs, according to Wedbush. 

Best Buy reported first-quarter earnings of $1.02 per share, well ahead of the Street’s 86-cent estimate. Revenue was essentially in line with expectations.

The Analyst

Michael Pachter maintained a Neutral rating on Best Buy with a $71 target price.

The Thesis

The big box electronics and home retailer seems to have found a formula for long-term growth, Pachter said in a Friday note. (See his track record here.) 

The coming tariff increase in the U.S.-China trade war is a problem, the analyst said. Best Buy was able to stock inventory before the current 10-percent tariffs took effect and work with vendors on production shifts out of China, he said.

But it’s unlikely Best Buy can easily absorb 25-percent tariffs, and this likely means higher consumer prices, something that's been factored into Best Buy’s 2020 guidance, Pachter said. 

Another issue: competition from e-commerce giant Amazon.com Inc. AMZN.

Best Buy also sells big items like appliances that people still tend to buy in stores, and it has a service element to its business, the analyst said. 

“While we remain concerned about competition from Amazon, we think Best Buy can continue to grow in the near-term from a higher mix of services and appliances." 

Price Action

Best Buy shares were down more than 2 percent at $64.51 at the time of publication Friday. 

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