Rudy Martin
One of our colleagues recently asked about Circuit City(CC Quote - Cramer on CC - Stock Picks) and the consumer electronics sector. Consumer electronics appears to be on many investors' minds, especially the major retailers: Circuit City, Best Buy(BBY Quote - Cramer on BBY - Stock Picks) and RadioShack(RSH Quote - Cramer on RSH - Stock Picks).
TheStreet.com Ratings stock model rates Best Buy a buy. Factors to consider here include consistent 13%-15% top-line growth over the last three years and improving operating margins with a product range that includes high-margin home theaters and video games. Another positive, though more long term, is the 51% stake it acquired two months ago in Jiangsu Five Star, the fourth-largest Chinese retailer of appliances. Best Buy's performance has been solid, with a low 10% debt-to-capital ratio and high 10% return on assets, while the overall return on equity profitability has remained in the 20%-25% range. Despite these healthy numbers, the market performance has been anemic. The stock is down 8% off its April 7 high of $59.50 on concerns of a consumer spending slowdown. The earnings conference call is scheduled for Tuesday. Circuit City also comes in as a buy, but less aggressively so. Revenue has been red-hot at 18% year-over-year growth in the last quarter, vs. a peer average of 11%. As with most retailers in this category, the fourth quarter makes the difference here. At CC, this becomes especially critical because it basically breaks even during the other quarters or runs at a slight loss until the year-end holiday season. The earnings conference call is scheduled for Sept 20.
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