Best Buy a Buy Ahead of Earnings: Analyst

NEW YORK ( TheStreet) - Best Buy ( BBY)is a buy heading into its fourth quarter earnings results next week.
Best Buy

The electronic retailer was upgraded to buy from neutral at Goldman Sachs, as the brokerage firm foresees a product cycle recovery,

Currently the stock is one of the cheapest in the hardlines sector, Goldman said. It upped its price target on the stock to $47 from $44.

As a result, shares of Best Buy are gaining 3% to $41.64 in morning trading.

Best Buy is scheduled to report its fourth-quarter earnings on March 25. The actual numbers, however, are of little consequence, as investors eagerly await Best Buy's fiscal 2011 guidance, with expectations are currently ranging from $3 to $3.54.

Gross margins will also be a key tell of the health of the business, J.P. Morgan analyst Christopher Horvers wrote in a note. Horvers hopes that Best Buy is prudent in its guidance.

Analysts are calling for fourth-quarter earnings of $1.79 a share on revenue of $16.05 billion.

Horvers says after Best Buy's December same-store sales of 9.3%, he believes sales weakened in January and February. He calls out notebook computers, mobile phones, appliances and lower-end televisions, as the strongest performing categories.

Best Buy's "connectivity center" could also boost revenue, UBS analyst William Truelove wrote in a note. The centers have products like televisions, computers and phones interconnected, and show consumers the benefits of connecting the devices.

Truelove said customers, through the connectivity center, are willing to pay 2% to 3% more for devices they can find cheaper at Wal-Mart ( WMT).

While these centers are only in select stores, Truelove believes it could extend to most of its locations over the next several years.

-- Reported by Jeanine Poggi in New York.

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