Goldman Sachs sees a good buy at
Analyst Matthew Fassler upgraded the electronics retailer's stock to buy from neutral Monday, citing the company's "high quality management and its excellent track record," as well as competitors' store closings, as reasons to maintain his earnings outlook.
"We expect the company to deliver on recent guidance and current Street forecasts," Fassler wrote. "We see an appealing opportunity to build positions in Best Buy, a high-quality retail operator, at an attractive price with a strong risk/reward profile."
Shares of Best Buy recently were up $1.28, or 2.8%, to $47.80.
Fassler compared Best Buy's management depth to that of
, which, he said, "has set the gold standard among hardlines retailers for several years for the depth and cohesion of its management team."
The analyst said CompUSA's recent decision to close more than half of its stores should add about one percentage point to Best Buy's sales growth, while
store closings are likely to add a smaller amount.
"Clearance activity associated with these closings is likely (to weigh) on sales early in the year," he wrote, "but their impact should ultimately prove favorable."
Describing Best Buy as the "toughest kid on the block," Fassler noted that the company delivered 21% net income growth in 2006, while competitors experienced sharp margin contraction.
Fassler also said the rampant price-slashing that hit the TV sector last year is less likely to repeat itself. While the risk of another pricing battle for LCD and plasma TVs "looms large," he said recent conversations with Best Buy and
indicated that retailers are better prepared for market fallout from price declines.
The key risks facing the company include the impact of slower housing activity, the potential for price declines on the flat-panel TV market to hit sales and margins, and the potential that Best Buy's management might pursue acquisitions that could cut into earnings.
"The company's penchant for deals and diversification is a more legitimate concern," he wrote, noting that retailers' experience with diversification rarely proves rewarding and that international growth has typically yielded poor results.
"We're heartened that
Best Buy has shown the discipline to walk away from new concepts that have not delivered, and that it clearly has planned China as a very long-term venture," he added.