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Best Buy Stock Rises as Piper Sandler Bullish on Membership Plan

Piper Sandler is bullish on Best Buy’s new membership program, sees more than 40% upside for the retailer's stock.

Shares of Best Buy  (BBY) - Get Best Buy Co., Inc. Report rose on Monday after analysts at Piper Sandler said the consumer-electronics retailer's new membership program will lead to new signups in the holiday season.

"With the upcoming rollout of its new membership program, Best Buy Total Tech, BBY is quickly becoming one of our top ideas under coverage," wrote Piper Sandler analysts Peter J. Keith and Robert A. Friedner in a note published Monday.

Shares of the Minneapolis retailer at last check jumped 4.9% to $109.84.

"With Total Tech launching in late October, we expect the new membership program to garner significant interest/sign-ups over the holiday season," they added.

The analysts' described Best Buy's new membership program "as one of the most intriguing initiatives" launched by the company in the past five years.

Best Buy's pilot membership program adds Amazon  (AMZN) - Get Amazon.com, Inc. Report Prime-like features such as exclusive member pricing and free shipping.

Though Best Buy’s program is pricier -- $199 a year compared with Prime’s $119 -- it is expected to appeal to heavy gadget users.

It also coincides with Best Buy’s expansion to other in-demand products such as patio furniture and electric mowers. 

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The investment firm also raised its price target on the stock to $150 a share from $146. Piper Sandler has an overweight rating on the stock.

Piper Sandler expects Total Tech subscribers to drive a 3% rise in comparable sales and a 5% to 8% increase in earnings per share in each of the next two years.

"Our analysis assumes that Best Buy at least doubles its member count over the next two years, from 3 million to 6 million, and new Total Tech members spend an incremental $400 to $500 with Best Buy each year," Keith and Friedner added.

The analysts also called Best Buy a cheap stock based on valuation.

"Best Buy is at a 5-year low relative valuation vs. the S&P 500 -- even below its relative valuation at the onset of Covid," they wrote. 

If Best Buy were to trade at its four-year mean relative valuation, this would represent a price-to-earnings multiple of 15.5 times over the next 12 months, they said.

The electronics retailer recently reported that for the quarter ended July 31, comparable sales grew 20% and operating profit added 40% compared with the year earlier. Adjusted earnings per share were $2.98, up 74%. The figure beat Wall Street by more than a dollar.

Best Buy’s revenue rose 20% to $11.85 billion.