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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