Analysts at Goldman Sachs upgraded shares of Best Buy (NYSE:BBY) to a Buy rating (from Neutral) and raised the Price Target to $85 (from $79), citing "the potential for a positive demand inflection to drive upside, primarily through multiple expansion."
In the latest note on the consumer electronics giant, the Goldman Sachs analysts argue that at current levels - BBY is trading "below historical averages on an EV/EBITDA basis" - the market appears to me misjudging two major factors: 1) not taking into account "the potential for a positive demand inflection," and 2) overly focusing on "broader concerns regarding the health of the consumer and potential near-term demand headwinds."
On the first point, the analysts highlight that "Industry-wide demand for consumer electronics may be on the path to recovery," especially in BBY's key categories of TVs and laptops, "supported by innovation and the upgrade/replacement cycle." The company's own management recently noted that "that TV unit sales grew on a y/y basis during the second
quarter, while laptop sales improved to being flat y/y."
Speaking of the broader market concerns, the Goldman Sachs report points that Best Buy is already "lapping seven consecutive quarters of declining comparable sales," thus "setting a relatively low bar" from a valuation standpoint. The analysts add that "although domestic category comps remain negative, they are on an improving trajectory."
Based on the above, the analysts believe any positive signs in the company's upcoming Q3 report may "drive upside, primarily through multiple expansion," as they upgrade the shares to Buy with an increased $85 Price Target.
Shares of BBY closed at $70.20 yesterday, implying over 20% upside from current levels.