Best Buy Co Inc (NYSE:BBY) — This retailer of consumer electronics and entertainment software operates about 2,000 stores in the U.S. and Canada. However, although its leadership is under pressure to improve service and reduce costs in an attempt to compete profitably with internet retailers, Standard & Poor’s expects mixed results from this effort in light of a very competitive environment.
As a result BBY stock is expected to have flat operating income and shrinking operating margins in fiscal year 2018 (Jan), compared to FY 2017’s margin of 4.5%. The lack of certain products from certain vendors is also expected to pressure revenues, and unfavorable exchange rates should do the same.
Thus, S&P has a “three-star Hold” on the stock with a price target of $45, which is 13.2X their FY 2018 earnings per share of $3.40. Despite a decline in demand, a 2.8% yield adds to the total return for those who hold the stock for one year.
Yesterday, Best Buy confirmed a double top at $40-plus by executing an “outside reversal.” The stock opened higher than Tuesday’s close and then exceeded Tuesday’s high, only to close lower than Tuesday’s intraday low.
This, along with an overbought MACD, leads me to believe that BBY is a strong short-sale candidate with a target of between $42 and $44. A gap exists in November that was partially closed in January and March. That open gap and the declining 50-day moving average are targets for the short-sale.
Short-sellers should check with their brokers in order to confirm that there are no special restrictions on the short sale of BBY stock, and be aware that they will be subject to an ex-dividend date on June 10. A stop-loss order should also be entered at $50 per share.
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