(BBY) Best Buy Analyst Maintains Neutral on Shares

We reiterate our long-term Neutral recommendation on Best Buy Company Inc. (BBY), one of the leading specialty retailers of consumer electronic products, home office products, entertainment software, appliances and related services, with a price target of $32.00.

Best Buy’s customer-centric operating model remains the driving factor behind its growth. The company tailors its store merchandising, staffing, marketing and presentation to meet the distinct needs of targeted customers. The company’s wide array of assortments, store formats and brand marketing strategies provides an edge over competitors.

Best Buy recently posted better-than-expected first-quarter 2012 results. The quarterly earnings of 35 cents a share, topped the Zacks Consensus Estimate of 33 cents, but fell 2.8% from 36 cents earned in the prior-year quarter. Management reiterated its fiscal 2012 adjusted earnings guidance range of $3.30 to $3.55 per share.

Richfield, Minnesota-based Best Buy, said that total revenue climbed 1.4% to $10,940 million from the prior-year quarter. However, the company registered a fall of 1.7% in comparable-store sales versus a growth of 2.8% witnessed in the year-ago quarter.

The total revenue also came ahead of the Zacks Consensus Estimate of $10,697 million. For fiscal 2012, Best Buy expects revenue to be at the high end of the guidance range of $51 billion to $52.5 billion.

Going forward, Best Buy intends to focus more on profitable sections, such as tablets, mobile phones, appliances and gaming. The company’s International business also provides opportunities for growth. It expects to strengthen the functions of the Best Buy brand in China with the Five Star division, and expand in the new markets of Mexico and the United Kingdom.

However, we still remain concerned about falling comps in televisions, and entertainment hardware and software categories.

Moreover, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability.

Given the pros and cons we maintain our Neutral rating on the stock. Moreover, Best Buy, which faces competition from Wal-Mart Stores Inc. (WMT), also holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating, and correlates with our long-term recommendation.

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