Best Buy Surges on Sales Boost: What Wall Street's Saying

NEW YORK (TheStreet) - Best Buy (BBY) shares surged following the big-box retailer's better-than-expected top and bottom line results for the third quarter.

Same-store sales in its domestic stores rose 3.2% in the quarter, while online sales surged 21.6% compared to last year's quarter. Best Buy's net sales rose slightly to $9.38 billion, above consensus expectations of net revenue of $9.11 billion.

Best Buy reported adjusted earnings from continuing operations of 32 cents a share compared to 18 cents a year earlier and above consensus expectations for earnings of 25 cents a share. The company was able to reduce expenses by another $65 million in the quarter, bringing the total savings under its Renew Blue cost savings initiative to $965 million since it began nearly two years ago.

Shares of Best Buy were up 7.3% to $38.13 in mid-Thursday trading. Here's what analysts said.

Matthew Fassler, Goldman Sachs (Neutral, $35 PT)

"BBY generated very strong 3Q sales, and better-than-expected EPS, reflecting solid sales in core TV and PC categories. EPS of $0.32 vs. $0.18 beat our $0.29 and the Street's $0.25. Domestic SSS rose 3.2%, well ahead of our -1.3% forecast - which we had just raised - and total revenue tracked more than 3% ahead of GS/consensus. The company does not issue comprehensive guidance, but spoke to "near-flat" SSS growth - we are at 0.8% / Street at -1.1% - and operating margin up ~50 bps YTY - we stand at +~80 bps, and the Street at ~+90 bps - with some pressure from higher incentive compensation.

We expect a favorable response to this print. SSS turned positive a quarter ahead of our forecast, and in the absence of sales growth for wireless, which should improve as supply constraints abate. We believe expectations for earnings were high, but that a positive comp was not embedded in expectations, let alone one of +3%. Upside to estimates looks modest given higher SG&A, but we interpret this as higher earnings quality."

"We recommend buying BBY shares into strength this morning after the company reported a significantly better-than-expected Q3. Most important, Q3 domestic comp (on an adjusted basis) was +2.4% vs. our estimate and consensus of -2% and -1.5%, respectively. NPD's reported Q3 sales improved to -0.2%, but BBY's outperformance relative to NPD widened. We believe this speaks to the strengthening product cycles (TV's, GoPro, mobile) that are largely in BBY's sweet spot, which in turn should allow for very solid Q4 results. Q4 guidance metrics were decent -- comp guided up, op margin guided lower than consensus -- but seem conservative given the Q3 inflection point on sales and the easy Q4 gross margin compare."

Bradley Thomas, KeyBanc Capital Markets (Hold)

"BBY does not provide formal sales or earnings guidance; however, management did provide some direction. Both Revenues and Comps are expected to be nearly flat year-over-year for the 4Q, which assumes that macro and industry trends do not deteriorate from the 3Q. Gross margin is expected to be up in the 4Q. SG&A dollars are expected to be essentially flat vs. last year. SG&A will include higher incentive comp, increased investments in customer-facing initiatives, and an incremental $20 million due to a greater proportion of its vendor funding being recorded as an offset to cost of goods sold rather than SG&A. As a result, 4Q adjusted operating margin is expected to improve roughly 50 basis points. Additionally, BBY estimates one-time tax items to negatively impact GAAP EPS by $0.09-$0.10 during the quarter."

David Schick, Stifel (Buy, $42 PT)

"3Q14 results should both (a) affect Street model inputs as two year comp stack improves while cost controls continue (which can affect EPS estimates) and (b) continue to prove out that BBY is becoming a better company (which can affect multiple)."

-Written by Laurie Kulikowski in New York.

Follow @LKulikowski

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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