Should I Buy Best Buy Stock After The Oppenheimer Upgrade?

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After Best Buy (NYSE:BBY) popped last Friday following an upgrade from Oppenheimer, investors may be taking a closer look at the shares. BBY stock pared back from that jump but remains almost 17% below its 52-week high.

Should I Buy Best Buy Stock After The Oppenheimer Upgrade?

Oppenheimer analysts upgraded Best Buy stock to outperform, citing the retailer’s successful transition to omnichannel sales and rising profits. Clearly, the focus on emerging products, lower prices, and improved financial management has returned BBY stock from 2012’s death spiral.

While one can argue whether or not BBY stock has become the “best” choice among retail shares, it’s clearly rebuilt a robust retail operation that should propel its growth for the foreseeable future.

Latest in a Series of Upgrades

Oppenheimer’s Brian Nagel upgraded Best Buy stock, setting an $86 per share price target. If BBY meets that target, the Richfield, Minnesota-based electronics retailer will barely eclipse the record high of $84.37 per share set in August. Though it got hit by the bear market of last fall, BBY stock has recovered nicely from its Dec. 24higher low of $47.72 per share. Now, meeting the latest target will take BBY about 23% higher than its current level of around $70 per share. BBY stock spiked 3.5% higher after the opening bell before retreating to a 0.65% drop during Friday’s trading session.

BBY has now seen 13 upward earnings revisions by analysts in the last 30 days. It’s unclear whether traders will follow Oppenheimer’s lead. Still, what has become evident is the recovery of both Best Buy stock and the underlying big-box retailer’s operation from the death spiral it saw early in the decade.

Embraced Omnichannel Ahead of Most Peers

In 2012, many analysts feared that Amazon (NASDAQ:AMZN) would drive Best Buy out of business. The CD business had disappeared thanks to Apple‘s (NASDAQ:AAPL) iTunes/iPod juggernaut. Ditto for DVD sales as consumers switched to streaming media offered from the likes of Netflix (NASDAQ:NFLX) and Roku (NSADAQ:ROKU). This helped to take Best Buy stock down to just over $11 per share by late 2012.

However, the company that many initially feared would become a notch on Amazon’s belt instead turned into one of the first retailers to successfully fight back. Many credit Walmart (NYSE:WMT) for its omnichannel success. However, Best Buy acted before Walmart in leveraging the benefits of its physical retail locations to supplement an e-commerce business.

Rather than allowing themselves to become Amazon’s showroom, they turned the store presence to their advantage. When Best Buy showed customers it would match Amazon on both price and delivery speed, many chose to buy from BBY.

The retailer also diversified its product lines. One major change was to increase its selection of products, more difficult to sell in a pure e-commerce setting. This led to BBY dramatically expanding its selection of appliances and emerging products.

Best Buy stock also changed from a financial perspective. In 2012, the company stopped increasing its dividend for a time. They also focused on managing costs and reinvesting savings into the business.

How Does Best Buy Stock Compare?

Investors returned to Best Buy stock, steadily bidding the shares higher over the next few years. This has taken BBY stock about 530% higher from 2012 lows. The company also resumed annual dividend increases in 2014. As of last quarter, the yearly payout has increased to $2 per share, a yield of about 2.85%.

Despite this massive increase, BBY stock looks like a bargain. It trades at only 11.7 times forward earnings, well under Walmart’s 19.7x forward multiple. Analysts also expect BBY to increase profits by 6.2%, compared to a reduction of 3.1% for WMT.

Compared to other retail stocks, Best Buy stock may not hold up as well. Analysts expect Target (NYSE:TGT) to post 8.3% growth this year. At a modestly higher 12.5x forward PE, it also offers a 3.25% dividend yield and a 51-year history of payout hikes. Nonetheless, Best Buy stock offers shareholder returns at a reasonable price.

Bottom Line on Best Buy Stock

The Oppenheimer upgrade affirms the case for Best Buy stock as well as the company’s impressive turnaround story. Once written off as a victim of Amazon’s competitive onslaught, Best Buy leveraged its physical stores, while improving its e-commerce operation and its financial management. This returned Best Buy to a path of growth and brought BBY stock back from the dead.

BBY stock rose from just above $11 per share to today’s $70 level in just over six years. Despite this run-up, BBY trades at only 11.7x forward earnings. Although Best Buy stock may not be the best retail stock today, it compares well to most peers. More importantly, it appears positioned to offer continued profit and dividend growth for years to come. Perhaps the analyst upgrades have only just begun.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.


Article printed from InvestorPlace Media, https://investorplace.com/2019/03/buy-best-buy-stock-oppenheimer/.

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