Best Buy a Retail Health Read

Circuit City a Nonevent

Circuit City also reports earnings Wednesday morning, but I believe this will be a nonevent that offers no indication as to the health of the retailing sector. Circuit City is dealing with an internal mess. Last week, the company unveiled plans to shut stores and lay off thousands of employees, including some of its more highly compensated (and theoretically highly skilled) sales associates.

If Best Buy posts a significant miss, I suspect the retail sector will feel the reverberations meaningfully. Investors will likely shoot first and ask questions later.

But a solid quarter and outlook should give investors some comfort (at least until next week, when chains' same-store sales numbers are released) that the retail group will continue to thrive despite headwinds.

If all goes according to plan and Best Buy offers guidance in line with expectations, I believe the stock, currently trading around $49, should have a $60 price target. At $60 the stock would trade at 18.9 times forward earnings, less than 1.2 times its projected growth rate of 16.2% -- an appropriate valuation for a best-of-breed retailer.