Why Best Buy Is A Favorite Hardline Retailer Heading Into Its Q2 Results

Previewing Best Buy Co Inc BBY's second-quarter results, which are due before the market open Aug. 29, Loop Capital Markets said the electronics retailer remains one of its favorite idea in the specialty hardline retailing space.

Accordingly, the firm reiterated its Buy rating and $72 price target ahead of the earnings release.

Analyst Anthony Chukumba expects the company to report fiscal second quarter earnings of 61 cents, 1 cent below the consensus. However, given the company's long track record of far exceeding expectations, the analyst thinks there is likely to be upside to its estimate.

The analyst said he has premised his second quarter expectations on a 1 percent increase in comps, driven by accelerated market share gains due to the completion of the hhgregg and RadioShack liquidations, flat gross margins and a 30 basis point decrease in SG&A expenses, excluding one-time items, as a percent of revenues.

Meanwhile, the analyst said his 2017 earnings per share estimate of $4 was 10 cents above the consensus estimate. The analyst attributed the positive view to higher top-line and profitability assumptions.

See also: Retail To Finish Q2 Earnings Season As Challenges Continue

Loop Capital believes investors are likely to focus on market share gains, some recent Amazon.com, Inc. AMZN-related developments and the upcoming iPhone launch.

The firm noted that Sears Holdings Corp SHLD has recently launched Kenmore products on Amazon.com and that recent reports suggest that Amazon is building a competitor to Best Buy's Geek squad.

The firm believes the company will likely provide third-quarter guidance as well as update its high level 2017 expectations. Additionally, the firm said better-than-expected comps and profitability, continued e-commerce strength and higher-than-expected share repurchases could make it incrementally positive on Best Buy.

"Given Best Buy's market leadership, favorable near-term prospects, track record of far exceeding consensus earnings expectations, and copious free cash flow generation, we believe the stock should trade at a significantly higher valuation," the firm concluded.

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