Tuesday, December 15, 2009

Best Buy down 8% despite a "beat and raise" quarter. (BBY)

Home electronics giant Best Buy (BBY) is off over 8% a few hours into trading. Despite beating revenue and earnings estimates, AND raising full year guidance, the shares are down.

Best Buy reported EPS (earnings per share) of 53cents, versus the street consensus expectation of 43cents. Last year's 13cents in EPS is not comparable, due to one time charges and a much higher tax rate. Full year guidance for the year ending February 2010 was increased to a range of 3.00-3.15, versus current street consensus of 2.96.

Gross margin slipped year-over-year, but the company leveraged fixed costs nicely...

Trading at $41.63, BBY shares are up huge from March lows near $25 per share, so they have "baked in" much expected good news. Results need to continue to impress in order for shares to retain these big gains. Still, this is a harsh reaction to pretty decent results. The biggest concern among investors today is likely the lower than expected gross margin for the coming quarter:

From the release:

"The company believes its improved revenue outlook for the fiscal fourth quarter will primarily be driven by categories in the domestic segment with lower gross profit rates such as notebook computers and entry price-point televisions across all screen sizes. As a result, the company anticipates a lower fiscal fourth quarter gross profit rate than previously expected."

As I wrote this, Best Buy shares are trading at a very reasonable 13times 2011 earnings estimates. That's a decent bargain for such a well run operation, but free cash flow will continue to lag, as BBY continues growing and spending heavily. So its Free Cash Flow Yield (FCFY%) of 5.5% is a bit low for my liking, but not unreasonable for a industry leader with likely upside to earnings estimates.

Copyright 2009 AlphaNinja

No comments:

Post a Comment