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Momentum for Best Buy as Holiday Season Nears

We'd prefer a wider margin of safety as shares of the firm appear fairly valued.

We believe Best Buy's fiscal 2021 revenue target of $43 billion looks like a tap-in, with $44.0 billion-$44.5 billion looking reachable even with an evolving competitive landscape (the basis of our no-moat rating) including Apple's wider distribution plans on Amazon. That said, we don't expect the path to 2021 will be linear and assume a moderation in near-term comps (our model calls for 3% in fiscal 2020 and 2%-3% in fiscal 2021). While we're intrigued by new platforms such as Total Tech Support and GreatCall (a connected-health services platform for seniors that can unlock new service and product attachment opportunities), they will take time for consumers to adopt and will also face competition from Amazon and other retailers. We also expect price compression in some product categories like 4K TVs, which will weigh on top-line results and profitability (our model only assumes modest margin expansion the next two years as current investment projects scale back).

We're not planning changes to our $58 fair value estimate. The stock has come in and now appears fairly valued (but still a solid income play), but we'd prefer a wider margin of safety.

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About the Author

RJ Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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