Best Buy Downgraded to Sell by Goldman Sachs on Valuation

Demand for Best Buy 'could see softness next year, especially as services’ share of wallet bounces from depressed 2020 levels.'
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Best Buy  (BBY) - Get Report shares fell Thursday, after Goldman Sachs analyst Kate McShane downgraded the consumer electronics chain to sell from neutral, lowering her price target to $97 from $107.

"With a valuation near peak, we see downside risk in the stock, driving our sell rating," she said. 

Shares recently traded at $102.11, down 2.52%, but have climbed 19% year-to-date through Wednesday.

“Stay-at-home trends drove sharp surge in demand for consumer electronics and household appliances,”McShane said. “Given the highly discretionary nature of these items, and aspects of multi-year durability, we believe demand could see softness next year, especially as services’ share of wallet bounces from depressed 2020 levels after a vaccine.”

Morningstar analyst Jaime Katz offered a mixed view of Best Buy in a commentary earlier this month.

“Despite solid top- and bottom-line momentum the past few years, we believe competition and evolving industry dynamics have eroded Best Buy's once narrow moat,” she wrote.

“Online retailers and mass merchants have competitive counter-measures at their disposal (price, investments, membership program benefits, expedited shipping), while key consumer electronics vendors can take products directly to consumers and launch trade-in programs to promote traffic in their own retail channels.”

So, “these trends raise questions about Best Buy's ability to profitably drive transactions over time, and provide the impetus for our outlook of 3%-4% average annual revenue growth and operating margins pushing 6% over the next decade (following the expectation of a 9% sales growth and 5.2% operating margin in fiscal 2021),” Katz said.

She put fair value for the stock at $98.