Best Buy Hones the Edge

Even though its stock is up 8% this year, Circuit City's (CC Quote - Cramer on CC - Stock Picks) decision in March to reject Highfields Capital's buyout offer hadn't looked like a good one until last week, when its shares finally nudged above $17.

The stock's support will be tested this Friday, when Circuit City reports earnings. Expectations are low. The consensus of Wall Street analysts is for the electronics chain to lose 2 cents a share, according to Thomson First Call. Worse than that and the stock could take lumps.

It's the other way around at competitor Best Buy(BBY Quote - Cramer on BBY - Stock Picks), which has seen its stock fall 1% this year but has a decent shot at beating the 30-cent-per-share consensus when it reports Tuesday.

"Between these two competitors reporting next week, Best Buy is the most likely to exceed consensus estimates," says Rick Weinhart, a Harris Nesbitt analyst who does not own shares of either company and whose firm has no investment banking relationship with them. "Just on the basis of potential share repurchases alone, Best Buy looks poised to do well."

Best Buy has taken a number of steps that could produce upside, including shifting investment from expansion into older stores. Wall Street has also heard reports that shopping picked up during the quarter.

Danielle Fox, an analyst with Merrill Lynch, said in a research note that customer traffic was "brisk at Best Buy and slow to moderate at Circuit City" this spring. The implications are that, even amid concern about a softening of consumer spending in the space, Best Buy is continuing to steal market share.

Same-store sales estimates could back the theory up. Fulcrum Global Partners analyst Stacey Widlitz predicts Best Buy will report first-quarter comps up 2%, while Circuit City will post a decline of 2%. Upside to Best Buy's earnings estimates is "not unlikely" since its comps may well be running at 3% or 4%, Widlitz says.

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