As Spending Habits Shift, BofA Upgrades Tractor Supply But Downgrades Best Buy

U.S. consumers are shifting their spending habits by prioritizing essential items over discretionary items, according to BofA Securities. The trend has inspired the firm to downgrade the rating for Best Buy Co. Inc. BBY, which — like most department stores — offers goods people want but don't absolutely need.

Meanwhile, Tractor Supply Co. TSCO received an upgrade, underscoring the relative strength of needs-based retailers.

BofA On Best Buy

Analyst Elizabeth Suzuki downgraded the rating for Best Buy from Buy to Neutral, while reducing the price target from $110 to $90.

“As the US consumer pulls back on discretionary spending, we see increasing risk to Best Buy’s FY24 (next year) earnings,” Suzuki wrote.

Although the company expects a modest year-over-year decline in sales from $51.8 billion in 2022 to a range of $49.3 billion to $50.8 billion in 2023, Suzuki thinks the downside risk could be a full reversion to the prior trend line.

In case Best Buy’s sales had continued at the pre-COVID growth pace of 1.6%, “FY25 sales would be on track to reach only about $47bn, about $8bn below the midpoint of BBY’s FY25E guidance range,” Suzuki added.

BofA On Tractor Supply

Tractor Supply, which went from Neutral to Buy, saw its price target jump from $250 to $260.

“Underscoring the relative strength of needs-based retailers, TSCO pre-announced 2Q earnings last week that appear to be tracking ahead of prior expectations,” Suzuki wrote.

“TSCO’s product mix — which is primarily non-discretionary products such as livestock & pet supplies, hardware/tools/truck supplies, and workwear — makes the retailer less vulnerable to the pull-back in spending that many retailers have exhibited in recent months,” she added.

BBY, TSCO Price Action: Shares of Best Buy and Tractor Supply had both added 1.5% and 1.8% respectively at the time of publication Tuesday.
Photo courtesy of Tractor Supply