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Best Buy Is Worst Buy: Stock Crashes After Goldman "Buy" Upgrade
From January 12, or the same day the SNB swore the "the minimum exchange rate must remain the cornerstone of our monetary policy" we got the following Best Buy upgrade from Neutral to Buy ($45 price target) courtesy of Goldman's crack Kermit crucifixion team:
Upgrade to Buy; product cycle, cap allocation, valuation
Source of opportunity
We upgrade BBY to Buy from Neutral with a new $45,12-month price target, suggesting 15% upside, among the highest in our sector after the group’s run. With solid sector fundamentals, including a surge in advanced TV sales, we are positioned above consensus for the next three quarters. We also see optionality on capital allocation and appealing valuation relative to our group. Beyond tactical considerations, we note BBY’s positioning as the sole surviving national specialty retailer in a category with increased product excitement; BBY’s better online sales growth; and, the reality that its pricing is increasingly at parity with Amazon, especially in TVs.
Catalyst
We stand above consensus for 4Q2014 – we expect solid sales when BBY reports holiday sales. We have stood above consensus for 1H2015, based on sales, and raise forecasts such that we are now in line for both 2H2015 and full year. Finally, we see the potential for a favorable reaction to any capital allocation decisions in light of the firm's hefty cash balance. We highlight an options strategy to trade these catalysts within.
Valuation
We see appealing valuation relative to our group (EV/EBITDA tied for lowest in our coverage, fourth highest FCF yield). Our new 12-month price target of $45 (vs. $38 prior) is based on risk/reward, deploying both EV/EBITDA (5.0x/7.0x/8.0x from 5.0x/6.2x/7.0x) and relative P/E (80%/96%/108% from 50%/90%/100%). Our revised multiples are based on stronger industry data releases and forecasts. We raise FY15/FY16 estimates on stronger sales and SG&A leverage
Fast forward to today when Best Buy is the Worst Buy after it reported the following:
“As we look forward to FY16, as we shared with you last quarter, we will continue to pursue a strategy that is focused on delivering Advice, Service and Convenience, at competitive prices. Within this strategy, we are focused on driving a number of profitable growth initiatives around key product categories, life events and services and on continuing to transform our key functions to support these initiatives. This strategy will be the foundation of our FY16 operating plan, and we are confident in our ability to execute against it as we have demonstrated this past year. But there are also external pressures that we discussed last quarter that are driving structural industry changes, including (1) deflationary pricing; (2) weak industry demand in NPD-reported Consumer Electronics categories; (3) declining demand for extended warranties; as well as (4) exchange rate volatility in our International businesses.
McCollam concluded, “Continuing on Hubert’s FY16 discussion, we do expect the impact of the external pressures he laid out to continue throughout FY16 and the impact of the incremental investments to begin in the first quarter. Additionally, we believe that the positive Domestic sales trends that we saw in mobile phones and home theater during the holiday period, in addition to the share gains we saw across other NPD-reported Consumer Electronics categories, were partially driven by the excitement around high-profile products and will not likely continue at holiday levels. As such, while we are excited about these investments and confident in our ability to execute against them, we are also appropriately cautious about the pressures. Therefore, we are currently expecting enterprise comparable sales in the first half of FY16, excluding the estimated impact of installment billing, to be flat to negative low-single digits and the non-GAAP operating income rate to be down approximately 30 to 50 basis points – reflecting a more modest sales environment and the impact of our incremental investments and SG&A inflation.
End result this:
And this:
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That Kermit pic just gave me a hernia I'm serious!
... blowback :)
Without a doubt my favorite ZH pic.
pods
I wouldn't own Best Buy shares if blankfiend floated down from the sky and handed them to me free of charge.
Nice image of the Zerohedge office!
now i'm confused. i always thought it was your hand that went in there
What's a little fist between friends? Just take off the rolex first.
Then Blankfein said, "Wrecked 'em? I nearly killed 'em!"
I had no idea Kermit and Obama were related.
The NAACT (National Association for the Advancement of Colored Toads) resents that photo!
photograhic proof that kermit has a whale of a goldman sachs boyfriend.
Meet too! That's the funniest thing I've ever seen on ZH!!!
Well, at least GS got the call "right" on gold/silver. LMAO
Laughed my f'ing tits off!!!! hahahahahahahahahahahahaha
That picture is just.... wrong.
The graph of BBY's stock price, I mean.
Poor Kermit. With that picture, I shall never be able to fondly remember watching the Muppet Show again.
At least no one stuck anything in there...yet.
think I saw an IWatch down there somewhere.
Temporarily removed for an upgrade and relube.
I see nary a hint of lube.
Goldman "Going in dry" Sachs.
Get out the glove for a cavity search.
Miss Piggy is lubed uo and ready to go. "Oh, Kermie, this is going to be so much fun!"
Where's Gartman? I need another contrary indicator trade...
I think that's him, the green guy bent over the couch.
what the ........
Ah don't worry.
They got out of their position alright.
and Kermit took their "position."
The GS Iron Kermit spread.
He's ready for camera on a stick...
What do you expect?
Thats what you deserve for listening to the the goldman/fed
Oil sub $39 etc etc
don't underestemate 39 oil it's falling again these are the weirdest markets I've watched in 6 years the manipulators are struggling yes!!!!
They need to hire more plate spinners.
A lot more.
At least it's not Ms. Piggy......I would be scarred for life.
poor gaping kermit
Closing 133 stores plus distribution in Canada should be good for the stock.
That was Target. They did a miserable job running their stores here in Canada (low or no stock, no staff etc) and they were rewarded when Canadians stayed away from their stores in droves.
meh. Had no trouble getting an electric blanket or other things I wanted, although one mp3 player I got there was shit & wouldn't have got another there.
My eyes are burning!
Are they still in business?
What used ti be one of my favorite destinations 10 years ago does not even enter my mind, except when ZH reminds me they are still out there...somewhere.
It's the place to go if you want over-priced, outdated models.
What's not to love?
Animal cruelty!
disclosing stock holdings on the other side of the chinese wall should be a requirement when buy/sell advice is offered. and not just current holdings, but all holdings for the last 4 quarters in that stock and all derivatives (swaps) as well.
Don't you think it's kind of early for comedy?
Okay, that picture is fucking funny.
We need Banzai to work his magic on that one...perhaps a shot of Lloyd coming through the door wearing a robe. ;-)
http://www.marketwatch.com/story/the-average-american-pays-280000-in-int...
The stores are empty. How many more f***ing T.V. sets can people buy? How many more I-Phones? How many more Mexicans can sign up up for new calling plans? The only hope is for the Fed to print another Trillion $ and really throw it from helicopters. Just stand on street corners and scoop up the $$ and run and buy more crap from China. An entire economy based upon gluttonous consumption, “Consumers Can’t Quit Now!”, “Go out and buy something! Rates have never been lower!” “Easy terms! Buy another SUV; different color!”
Insanity! Don’t make anything, don’t work, just trade stocks and the Fed will guarantee they go higher to support their vision of the ‘wealth effect’. “Buy stocks, you cannot lose, you will get rich, the Fed will not let the markets fall!” They could close 1/2 of ALL retail and it would not be missed.
awesome
Bush: go out and shop
https://www.youtube.com/watch?v=fxk9PW83VCY
But always be weary of those evil terrorists in everyones back yard....
Agreed its sickening,.
BB is a horrible experience to shop in... Stop at one of our local ones before Christmas, there must have been almost a dozen employees hanging around the cell phone counters, waiting for customers... The rest of the store there is almost nobody to help you. or they are already busy - asked one of the "cell phone" guys for help, he sent me on a wild goose chase - would not even leave his "cell phone space".
At least the second-hand stores are all well stocked now. Salvation Army store on the rich side of town is awesome. The amount of new merchandise they have is insane.
I haven't paid more than $3 for a work shirt in nearly twenty years.
damn and here i went and bought bby common based solely upon their recent recommendation. /s
Kermit has 2 horizontal smiles! How nice!
Ms. Piggys got one helluva strap on.
You leave Janet alone -- she is more of a Mother Goose than Miss Piggy, although FED actions may indicate otherwise.
Or giving head takes on a new meaning...
ROTF LMFAO
Priceless!
ROTF LMFAO!!! That Kermit graphic is excellente!!!
Outstanding Tyler!!!
Hensen is rolling in his grave I bet.
This isn't news, it's how they create profits.
Lube up Kermit's, more to come ;-)
Anyone into muppet porn just had an early Christmas
Ah, the old 'premature Christmas'.
I never knew he had it in him.
Too damn funny. Note that this time, Kermit opened wide in eager anticipation. Anyone thinking that a retail store-based, warranty-centric, outsourced mfgr. industry was ever a good investment in the days of online sales and electronics with 2-3 year obsolescence deserves a muppet reaming.
Was not mentally prepared to see the frog like that.
We crucified some folks.
Goldman is on it's way to win the 'Best Contra Indicator Award' of the year.
Cashed in their shorts and laughed all the way to the attic.
Shitty day for Minneapolis-based businesses. The Target news (pulling out of Canada) was widely expected here, but it's going to lead to a bloodbath. Lots of people are going to lose their jobs; not just the Canadian employees but a lot of US too.
As for BBY, I make it a point not to shop there. Not out of spite, but they don't carry the things I want at the price I want to pay. I know what I want when I walk in the door and I don't want to be sold whatever they've told their employees to move. They don't understand the 8 different colors of the same item is not the same as having 8 different items. I'm a demanding customer I'll admit, and they don't carry the things I want and need. The last time I was in one of their stores, I wanted to buy bags and filters for a vacuum cleaner I had bought there, and a couple of specific video adapters. They directed me to their website for vacuum cleaner supplies. They hadn't heard of some rather common video adapters and suggested, "Maybe Amazon?"
My teenaged son came with me and looked at the newly-remodeled Samsung area in the store and wondered if BBY was trying to imitate an Apple store. When a kid sees that, it shows a company that doesn't know who they are or what they are doing.
I know in our current market environment all we care about is finance and actual business doesn't matter, but I keep trying to give BBY my business and they're not interested, apparently.
There's a Microsoft store in a Dallas mall that looks like they copied the Apple store layout.
Except for the customers. There was maybe 8 people in the store. Very instructive visual.
The M$ store in Cincy is a joke.
More employees than customers.
At least they have colorful shirts.
Saw the same here.
One of the best laffs I've had.
Hope it slows down Gate's murderous eugenic vaccine program.
I am still impressed by Bill Gates' prescience 17 years ago. That boy is wicked smaht.
Methinks you won't be hearing Kermie yell "Yaaaaaay!" following this pounding.
Poor GS muppet never even saw it coming!
When will they learn doing the opposite of what GS gives you for advice actually improves returns.
Kermit's picture is a false flag. There's no blood & frog detritus on the couch.
You mean false fag?
In that case there would be skittles.
Someone put out a Blankfein trap, kinda like a roach motel.
3) Declining demand for extended warranties...
Thats the biggest scam in retai. Fuckem.
I never believed in them either...that is until I replaced all appliances after a power hit with the engineered obsolescence of monopoly WHP. At $45 to cover all, I bought it with GE as the underwriter.
2 circuit boards @ $90 ea.
1 icemaker
1 diode dryer
2 calls on the washer that was tearing the clothes
2 motors for dishwasher
Jack Welch ate it right along with me.
GE soon got out of the ext-war biz.
hahahahah
Just fade the Goldman Sacks 'Muppet' Research reports.
Kirmit the sloppy jew doesn't look like a best buy.
Only thing that could make that pic better would've been Miss Piggy with a big black strapon.
"Take it Kerme, take it bitch!"
I was wondering about a fleshlight inside Kermit (action side pointed out) with a dollar bill hanging out. But that's just me...
Roughly still moved aligned with SPY in the last 2 years... where one smashed down, as did the other, most of the time. I'd say keep an eye out for both FAS and BBY when the market's finished its full crash (loss exceeding 60% down from current levels) and then if cash is still real (not switched to gold & silver coin, barter, marauders in the streets), there's 2 buys.