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Best Buy Co Inc BBY

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Hold Your Course! Maintaining Our Best Buy FVE Despite Sell-Off; Shares Now Look Fairly Priced

Sean Dunlop Equity Analyst

Analyst Note

| Sean Dunlop |

Narrow-moat Best Buy reported strong fiscal 2022 third-quarter results, with 2% comparable sales growth year over year healthily exceeding guidance of negative 3%-0% and driving impressive 25% growth on a two-year stack, with elevated sales levels looking increasingly sticky. Inventory was up 13% from prepandemic levels despite procurement concerns, broadly in line with fourth-quarter stacked comparable growth guidance of 12% at the midpoint, corroborating our view that the largest retailers that are able to dip, dive, dodge and duck around tangled supply chains with chartered or alternative transit methods should be adequately stocked to benefit from strong holiday spending. Progress in the firm's Totaltech loyalty program and the sustained demand-generative capability of service offerings leave us confident in our expectations for 3.5% long-term sales growth, while fulfillment improvements and an elevated (long-term margin-accretive) e-commerce mix should prove sufficient to defend 5.5% and 5.3% operating margins through 2025 and 2030, in our view. After accounting for the time value of money, the tuck-in acquisitions of Current Health and Yardbird, and a slight hike in full-year guidance, we expect to maintain our $116 fair value estimate. The shares are trading in a range we consider fairly valued after a midteens percentage postprint drop.

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Company Profile

Business Description

With $47 billion in 2020 sales, Best Buy is the largest pure-play consumer electronics retailer in the U.S., with roughly 10% share of the aggregate market and nearly 40% share of offline sales, per our calculations, CTA industry, and Euromonitor data. The firm generates the bulk of its sales in-store, with mobile phones and tablets, computers, and appliances representing its three largest categories. Recent investments in e-commerce fulfillment, accelerated by the COVID-19 pandemic, have seen the U.S. e-commerce channel roughly double from prepandemic levels, with management estimating that it will represent a mid-30% proportion of sales moving forward.

Contact
7601 Penn Avenue South
Richfield, MN, 55423
T +1 612 291-1000
Sector Consumer Cyclical
Industry Specialty Retail
Most Recent Earnings Oct 31, 2021
Fiscal Year End Jan 29, 2022
Stock Type Cyclical
Employees 102,000

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