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On Wednesday, Evercore ISI adjusted its outlook on Best Buy shares (NYSE:BBY), reducing the price target to $80 from $95 while maintaining an In Line rating. The adjustment follows Best Buy’s report of negative comparable sales (comps) and margin erosion in the first quarter, marking the third consecutive year of negative comps. The stock has declined nearly 17% in the past week, with revenue dropping 4.4% over the last twelve months to $41.53 billion. According to InvestingPro data, nine analysts have recently revised their earnings downward for the upcoming period. However, the forecast for fiscal 2026 anticipates a shift to flat or positive comps, offering a glimmer of hope.
Evercore ISI’s analysis indicates that while Best Buy faces ongoing competitive and industry sales pressures, there is potential for stabilization. The firm’s commentary suggests that macroeconomic improvement, a computer replacement cycle, and company initiatives aimed at enhancing margins could contribute to a more favorable outlook. InvestingPro analysis shows the company maintains a healthy financial position with sufficient cash flows to cover interest payments and operates with moderate debt levels. Notably, Best Buy has seen growth in services, including an increase in paid membership from 7 million to 8 million, and strong computing sales, which have supported gross margins of 22.6%.
Despite a slight decline in first-quarter comps, Evercore ISI views the guidance as realistic, given the broader retail environment’s performance. The analyst firm also notes that the guidance for the year does not factor in potential tariff impacts. A 10% Chinese tariff announced in February could affect comps by 1 point, according to Evercore ISI’s estimates.
In the fourth quarter, Best Buy demonstrated some positive signs, with a marginal increase in domestic comps compared to the first half’s decline. The improvement was driven by computing, tablets, and services. Gross margins are expected to continue improving in the first quarter and throughout the year, benefiting from the rollout of Best Buy’s marketplace and advertising initiatives.
Evercore ISI presents two perspectives on Best Buy’s future: optimists believe that positive comps this year and a margin recovery could propel earnings per share (EPS) toward $7+ in fiscal 2027, with the stock potentially reaching $100. Pessimists, however, point to the challenges of maintaining traffic and market share, along with tariff volatility.
The firm concludes that with comp trends showing improvement and potential upcoming product replacement cycles, EPS could bottom at approximately $6.30 this year, with a forecast of about $6.50 for fiscal 2027, reflecting a year-over-year increase of roughly 4%. As a result, Evercore ISI’s Base Case price target has been adjusted to $80, assuming a 30% discount to the S&P as sales return to flat or slightly positive next year. Following a 15% decline in Best Buy’s stock since being added to the negative tactical Underperform (TAP) list on March 3, Evercore ISI has now removed the stock from this list post the fourth-quarter event.
In other recent news, Best Buy reported its fourth-quarter earnings for fiscal year 2025, surpassing analyst expectations with an earnings per share (EPS) of $2.58, compared to the forecasted $2.39. The company achieved a revenue of $13.9 billion, marking a 0.5% growth in comparable sales, driven by strong digital and computing sales. Despite these positive results, the stock experienced a decline, reflecting investor concerns over future growth and operational challenges. Analysts from Citi, DA Davidson, and Jefferies have all adjusted their price targets for Best Buy, citing potential impacts from tariffs as a concern. Citi lowered its target to $93, DA Davidson to $110, and Jefferies to $92, with all firms maintaining a Buy rating. Best Buy’s 2025 outlook has been well-received, aligning with or exceeding consensus forecasts, particularly on the higher end for EPS. The company is also planning to close 5-10 stores, which could indicate operational shifts amidst the current market environment. These recent developments highlight Best Buy’s continued efforts to adapt to the evolving consumer electronics market while navigating external challenges.
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