This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Best Buy May Be the Next Home Depot (Update 2)

Stocks in this article: AAPL BBY AMZN JCP SHLD

Updated from 3:31 p.m. to reflect CNBC report of J.C. Penney CEO firing and closing share prices.

NEW YORK ( TheStreet) -- As Best Buy (BBY) continues to map out new strategies to increase its profitability and compete against specialized and online retail competitors like Apple (AAPL) and Amazon (AMZN), the junk-rated company is being compared to Home Depot (HD), the home products retailer that recently hit a record high share price.

Credit Suisse analyst Gary Balter on Monday said in a client note that Best Buy's strategy is to become the consumer electronics version of Home Depot, which he believes carries a premium customer experience, driving above average profit margins.

Best Buy previously has previously been associated with the likes of Circuit City, its defunct big box electronics retail competitor, in addition to J.C. Penney (JCP) and Sears Holdings (SHLD), two nationwide retail basket cases that have seen their earnings plummet amid a lack of competitiveness and uncertain restructuring plans.

J.C. Penney said on Monday its chief executive Ron Johnson has stepped down and will be replaced by former CEO Mike Ullman. Johnson was brought to the retailer from Apple to help revive the company's stores and implement a new pricing strategy.

TheDeal reported on Friday that some of J.C. Penney's vendors have been tightening credit and private equity firms are circling the retailer, citing unnamed industry sources.

Comparisons with Home Depot instead of J.C. Penney may be early given the company's post-crisis earnings growth and Best Buy's losses in 2012 and the first quarter of 2013.

Still, Balter sees Best Buy's recent announcements such as a store-within-a-store partnership with Samsung and the company's growing importance to product sales by Apple (AAPL) as reasons for optimism.

According to Balter, the Samsung partnership may boost Best Buy's service experience to electronics customers and help to eventually increase profit margins. If the combined service with Samsung increases customer traffic, it could help Best Buy win back leverage from suppliers such as Apple, boosting overall profits.

"Think of Home Depot, where consumers and pros treat HD's selection as the premier selection in the home improvement category... The value of that shelf space cannot be underestimated in this relationship. That is a primary reason why HD delivers double-digit margins," wrote Balter, who also cited AutoZone (AZO) and Bed Bath & beyond (BBBY) as similar premium retailers.

The Samsung partnership "is the first signal that vendors understand the value add that Best Buy can bring to the consumer purchasing process, something which to date has been undervalued by both suppliers and investors," according to Balter.

Were the Richfield, Min.,-based retailer to eventually be associated with a premium experience, it could pressure Apple to make store-in-store displays more supportive of Best Buy. Currently, Balter estimates Apple's space within Best Buy stores carries some of the retailer's lowest profit margins.

Best Buy shares traded higher by over 2% in Wednesday trading, closing at a 12-month high of $25.96. The shares were among the biggest gainers on the S&P 500 on Wednesday.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,853.51 +75.36 0.42%
S&P 500 2,074.47 +13.24 0.64%
NASDAQ 4,774.2150 +25.8190 0.54%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs