Thursday, March 25, 2010

Best Buy up 6% in premarket trading, after a nice earnings beat (BBY)

Electronics retailer Best Buy (BBY) is trading +6% early, on a nice q4 and even nicer forward guidance.

Earnings for their fourth quarter ended February came in at 1.82 per share, about 3cents ahead of expectations. Revenue of $16.55billion was $500million higher than anticipated.  For the coming year, they provided guidance for EPS of 3.45-3.60, the midpoint of which is easily above the expected EPS of 3.37.

For the quarter, same store sales were +7%, versus -5% a year ago.  Even with those numbers however, the pricing brutality of this industry shows up in a lower gross margin despite much better sales.

Investors are excited early about management's confidence in issuing upside guidance in this environment.
“In a year of ever-changing variables, the one constant, as always, was the value our people provide. They are the differentiating factor for Best Buy, and I want to thank them for another outstanding year,” said Brian Dunn, CEO of Best Buy. “We believe the next stage of our growth will be fueled by our employees helping customers connect to the things and people they care most about, and our investments around the world flow directly from that point of view.”
 Investors are also bidding the stock up on a blockbuster cash flow quarter, with BBY ending the year with $4 in cash per share (and that's after I discount it for repatriation taxes, as some of it is sitting abroad).

Netting out cash, Best Buy now trades at 10.3 times the high end of this year's earnings guidance.  A trailing P/E of 15 on this stock by next year (plus adding in cash of $5 by then) would have them trading at $59, or almost 34% higher that the $44.28 they're trading at premarket.  Nice.

Copyright 2010 AlphaNinja

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