On Thursday, Telsey Advisory Group maintained its Outperform rating on Best Buy shares (NYSE: NYSE:BBY) with a steady price target of $115.00. The firm anticipates a gradual improvement in Best Buy's sales, despite the current slowdown in demand for high-priced discretionary items. This trend follows a period of heightened demand during the pandemic, which is now normalizing.
The expectation is that Best Buy will experience a resurgence in growth in the first half of 2025, breaking a streak of negative comparative sales quarters. This growth is projected to be driven by new product cycles, particularly for items purchased during 2019-2020. Best Buy has already observed positive sales in computing and mobile phones, attributed to the replacement cycle.
Innovation is also playing a key role in Best Buy's outlook, with products like the new Microsoft (NASDAQ:MSFT) Copilot laptops featuring artificial intelligence gaining popularity. The analyst notes that the introduction of the Apple (NASDAQ:AAPL) Intelligence AI platform across Apple devices is anticipated to further bolster this trend.
Best Buy's growth is not limited to product sales; the company is also seeing benefits from its expanding high-margin services, including loyalty and health programs. These services are expected to contribute more significantly as they scale throughout the year and beyond.
Operationally, Best Buy is praised for its cost management strategies, which are expected to support future leverage as sales numbers turn positive. Telsey's confidence in a nearing sales and profit inflection point underpins the reaffirmed Outperform rating and 12-month price target of $115, which reflects a price-to-earnings multiple of approximately 16 times the firm's 2025 earnings per share estimate of $6.97.
In other recent news, Best Buy has been the focus of several analyst firms following strong Q2 earnings that exceeded expectations. The electronics retailer reported a 10% increase in earnings per share to $1.34, prompting a raised full-year earnings guidance. This performance was accompanied by signs of recovery in comparable store sales, which showed a decrease of 2.3% in Q2, a significant improvement from the 6.1% decline in Q1.
Jefferies, Loop Capital, DA Davidson, and Citi have all maintained their Buy ratings on Best Buy, with Jefferies setting a price target of $116.00, Loop Capital at $110.00, DA Davidson at $117.00, and Citi at $115.00. The firms cited factors such as Best Buy's improving domestic comparable sales and strong data related to computer products as reasons for their optimism.
Best Buy has also partnered with Sealed Air (NYSE:SEE) Corporation to introduce more sustainable packaging options, aligning with the retailer's environmental sustainability objectives. This initiative allows Best Buy to increase its use of recycled content in shipping materials throughout North America.
InvestingPro Insights
Recent data from InvestingPro adds depth to Telsey Advisory Group's optimistic outlook on Best Buy (NYSE: BBY). The company's market cap stands at $18.63 billion, with a P/E ratio of 14.85, suggesting it may be undervalued relative to the broader market. This aligns with Telsey's expectation of future growth and their $115 price target.
InvestingPro Tips highlight Best Buy's financial stability and shareholder-friendly policies. The company has raised its dividend for 6 consecutive years and maintained payments for 22 years, demonstrating a commitment to returning value to shareholders. This is particularly noteworthy given the current dividend yield of 4.33%, which could be attractive to income-focused investors.
Moreover, Best Buy's ability to cover interest payments with its cash flows and operate with moderate debt levels supports Telsey's positive view on the company's cost management strategies. These factors could indeed provide leverage for future growth as sales improve.
For investors seeking a deeper understanding of Best Buy's potential, InvestingPro offers 7 additional tips, providing a more comprehensive analysis of the company's prospects.
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