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Best Buy (BBY) Estimates, PT Cut By RBC Capital After Gloomy Outlook

 March 30, 2012 01:43 PM

RBC Capital Markets analyst Scot Ciccarelli lowered his price target on shares of Best Buy Co. Inc. (NYSE:BBY) to $27 from $28, while maintaining its "Sector Perform" rating.

The brokerage reduced its 2013 EPS estimate for Best Buy to $3.55 from $3.80 and its 2014 estimate to $3.75 from $4.17.

While Ciccarelli would continue to refine his model given the many moving pieces here, he believes there could be risk to our forecast for a gross margin decline given recent trends (although guidance is for flat gross margin percentage).

While the company exceeded expectations for fourth quarter, the analyst believes these results are being significantly overshadowed by the continued deterioration in the core business.

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Despite substantial contributions from the closing of money losing businesses, acquiring the rest of CarPhone Warehouse, and newly-announced cost savings plans, EBIT is still expected to decline by 4% to 11% in fiscal 2013.

Most of the company's cost savings plans ($250 million for fiscal 2013; $800 million over the next 3 years) are being "re-invested" in the business, rather than flowing through to the bottom-line. An upward revaluation of the stock doesn't seem likely in the near-term, and the analyst would continue to avoid BBY despite yesterday's decline.

Following a 0.4% Domestic comp decline in December, Domestic comps came in at down 2.2%, implying a roughly 4% comp decline in the combined months of January/February. This deterioration has likely led to the company's guidance for a 2% to 4% comp decline for fiscal 2013 versus Ciccarelli's previous flattish estimate.

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Best Buy operates as a retailer of consumer electronics, home office products, entertainment products, appliances, and related services primarily in the United States, Europe, Canada, and China.

BBY is trading down 2.79% at $24.08 on Friday.

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