Best Buy Stock Jumps 9% As Analyst Predicts Growth
Best Buy Corporation’s stock climbed nearly 9 percent to $29.74 Monday after industry analyst Gary Balter at Credit Suisse raised his target price for the retailer’s shares from $32 to $40 for the next year.
The Richfield-based electronics retailer, which was shunned by investors last year, has become one of the top turnaround stocks of 2013. After plummeting about 50 percent in 2012 to close the year at $11.85 per share, Best Buy’s stock has become one of the top-performing stocks on the S&P 500 index for 2013.
Balter described Best Buy’s change as “turning its store base from a cost liability to an offensive weapon, part of [a] multi-fanged distribution approach to customer satisfaction.”
The analyst ascribed Best Buy’s vendor agreements with Microsoft and Samsung as key drivers of its future success. He said those partnerships represent “a badge of recognition that these suppliers need a strong brick-and-mortar player to promote their products.”
Best Buy began to rollout the mini Samsung retail stores within nearly all of its locations in April and May and added a similar store-within-a-store model with Microsoft for Windows stores in June.
“[These vendor agreements] offer higher margins, lower employee costs, better trained associates, and lower store rent costs,” Balter added.
According to Balter, the key to company turnarounds failing or succeeding begins with management, and he believes Best Buy’s recent leadership changes are a step in the right direction.
He’s not alone: Best Buy’s stock jumped in February when other analysts began to praise the company’s new leadership. Following a scandal involving former CEO Brian Dunn, Hubert Joly became chief executive in September, and was joined by Chief Financial Officer Sharon McCollam in November.
Balter said he believes the new management team’s improvements to the company’s online presence can “reverse what remains the Achilles heel” of the company.
“Under Hubert Joly and Sharon McCollam, [Best Buy] is no longer dipping its online strategy part way, no longer leaving it vulnerable, but instead is submerging and revamping everything from the search engine, recognition, product placement, tie in with services, store pick up, and—most important—pricing,” said Balter.
As Best Buy’s stock price continues to rise, some executives have taken the opportunity to cash in stock options. According to Barron’s, three executive vice presidents disposed of 119,576 shares for $3.22 million at an average of $26.90 each, from June 21 through June 26. Shari Ballard, president of Best Buy International, reportedly sold off the largest portion—72,942 shares for $1.97 at an average of $27 each.
Although Balter has high hopes for Best Buy, he assured in his report that the company still has a long road ahead of it, on which it will face tough competition, and growth will take time.
“As important as the steps [Best Buy] is taking, there remains a healthy skepticism over whether [it] can escape the clutches of Amazon and a sluggish sector, which is why the stock is so inexpensive,” said Balter. “Much as Rome was not built in a day, this is a multi-year effort, one with costs initially to potentially reap the rewards longer term.”
Shares of Best Buy’s stock were trading down about 2.76 percent at $28.92 during Tuesday midday trading.