Why the Outlook of Best Buy Stock Is Still Upbeat

BBY has tapped a new CEO and she looks like a great choice for BBY stock

When Hubert Joly became CEO of  Best Buy (NYSE:BBY) seven years, ago it did look like he could be committing career suicide. Best Buy  stock had fallen by more than half in a couple years and appeared to be at an existential moment.

best buy stock bby stock
Source: Best Buy

The buzz was that BBY would inevitably be another victim of Amazon.com’s (NASDAQ:AMZN) relentless e-commerce machine. The company’s margins were slipping and so were its comparable-store sales.

But Joly was upbeat and ready for the challenge. In the press release announcing his appointment, he said: “Building on the Company’s strengths and ongoing work, I believe Best Buy has the capacity to write an exciting new chapter in its history. I sincerely look forward to writing this chapter with the Best Buy team and putting in place the short-term and medium-term actions that will help ensure its success.”

Well, Best Buy stock and BBY did extremely well during Joly’s time as CEO. During his tenure, BBY stock has gone from $18 to $74.

On Apr. 15, BBY announced that he would step down as CEO on Jun 1. But he will remain with the company as its executive chairman.

Taking his place as CEO will be the current CFO, Corie Barry, who has been with BBY since 1999. An accountant by training, she also has served as the interim chief of the company’s services business and is on the board of Domino’s Pizza (NYSE:DPZ). But more importantly, she has had the advantage of working with Joly, so there will be continuity after the transition.

Best Buy Stock and The Company’s Transformation

Joly has certainly left his imprint on BBY. Not surprisingly, a key part of his strategy was aggressive cost-cutting. In all, more than $1.4 billion in savings were realized during his tenure.

But in the meantime, Joly has been savvy in finding ways to rethink the core business. To deal with the Amazon threat, he has made BBY’s prices competitive with those of AMZN . He also focused on effectively utilizing the company’s brick-and-mortar footprint, which includes over 1,100 locations in the US, Canada and Mexico.

For example, according to the research from Jefferies, the stores are essentially warehouses that are used to fulfill about 40% of online sales, helping to create a true omnichannel platform.

Yet perhaps the most important part of BBY’s strategy has been its focus on services, which is critical because technologies have gotten more sophisticated. But then again, services also can provide recurring revenues.

Some of the company’s recent service-oriented initiatives include:

  • Total Tech Support: Unlimited support from the Geek Squad, which includes over one million employees.
  • In-Home Advisor provides recommendations and personalized plans for such things as Wi-Fi, appliances, home theaters , etc. The service is free.
  • GreatCall: Best Buy acquired this business for $800 million in cash. GreatCall offers a variety of simple mobile devices – such as phones and wearables — that are targeted at seniors. The owners of the systems have 24/7 access to board-certified doctors and nurses.

The Bottom Line on Best Buy Stock

Best Buy’s growth has been impressive. Consider that the company has posted positive comparable sales for five consecutive years.

And going forward, there are several important catalysts, such as the emergence of 5G, that should enable the momentum of Best Buy stock to continue.  5G is likely to spawn many new innovations.

Finally, Best Buy stock is trading at a reasonable valuation, with a forward price-earnings multiple of 12. Moreover, the dividend yield of BBY stock is a decent 2.81%. So all in all, it does look like the bull case on Best Buy stock is still very well intact.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2019/04/why-the-outlook-of-best-buy-stock-is-still-upbeat/.

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