Why Best Buy Shares Are Falling After Solid Earnings

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Best Buy  (BBY) - Get Report shares fell after a strong earnings report, although management’s commentary around guidance suggested something investors are particularly nervous about right now: the magnitude of the coronavirus impact isn’t fully known yet.

The stock fell 3.02% to 79.70 a share Thursday, worse than the S&P 500’s drop of 2.17%, which is also due to virus concerns.

Best Buy’s earnings per share came in at $2.90, beating Wall Street’s expectations of $2.75. Revenue was $15.2 billion, beating estimates of $15.05 billion, driven by a solid 3.2% same-store-sales increase. That compares to an increase of 1.9% in the same quarter last year.

Guidance wasn’t anything investors were incredibly surprised at either. Revenue for calendar year 2020 is expected at just below $44 billion, driven by comparable sales growth of between 0% and 2%, with the midpoint of that just under analysts hopes of 1.8%.

EPS, management thinks, can hit $6.20, just under Wall Street estimates of $6.22. Often, Best Buy’s guidance lags Wall Street estimates and can prove conservative.

But the stock, while flat for the year coming into earnings, was up 10% for the past 3 months and trading at a valuation in line with its recent average of the past few years. “We expect a neutral reaction to this print,” wrote Goldman Sachs analyst Kate McShane before the market opened.

And here was the kicker:

While management said the inline guidance reflected caution over the coronavirus, the team also said “this is a very fluid situation, which makes it difficult to determine exact financial impacts from disruptions in supply chain.”

U.S. Investors have grown risk averse as the virus shows no signs of slowing and chip makers, many of whom supply Best Buy electronics, are moving back to production in China at a slower rate than previously expected. Chip analyst have been quick to note chip makers have largely not yet fully baked lowered production expectations into guidance. 

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