Best Buy's Growth Prospects: AI, Replacement Cycle, and Consumer Landscape Challenges

Best Buy buoyed by replacement cycle, but consumer landscape remains a wild card (BBY)

A PC replacement cycle that typically occurs every 4 to 5 years coupled with new products powered by artificial intelligence will continue to drive sales for Best Buy (NYSE:BBY), but analysts remain cautious as to how the tech retailer will weather the challenging discretionary environment and pressure from other omni-channel competitors. The company's shares were launched higher on Thursday after Q2 results topped Wall Street's expectations as demand for new laptops and tablets offset lackluster sales for appliances, home theater, and gaming. "The future looks bright for [Best Buy] as AI and PC replacement cycles gain steam, innovation picks up in other categories, and housing improves," said Piper Sandler's Peter Keith and Alexia Morgan. A sentiment echoed by Barclays' Seth Sigman who is "encouraged by the inflection in certain categories and optimistic about the innovation ahead." While the results and reaction by the stock led Wall Street analysts to raise their price targets by ~15%, the majority kept a neutral rating on the stock because of the uncertain retail environment and outlook for more promotional pricing into the holiday season. The promotions come at a time when cost savings are paramount to retailers and will likely result in added pressure on the company's margins. "Relative performance is still a concern," Barclays' Sigman adds, as "easier margin gains seem done, requiring a sharper acceleration in industry demand." Best Buy (BBY) management did not seem overly concerned by the consumer backdrop and expects increased "stabilization" within consumer electronics in the second half of this year. "We don't believe anything in our data signals that customer behavior has changed in a way that would make us increasingly cautious. Thus, we are balancing our optimism in both the industry and our positioning with a pragmatic approach to likely uneven customer behavior going forward," CEO Corie Barry said on the company's earning call. "The future looks bright for BBY as AI and PC replacement cycles gain steam," Piper's Keith and Morgan said, with innovation picking up in other categories. But implied Q4 comparable guidance is less certain given that the discretionary consumer spending environment remains volatile and as most consumers seek value," Wedbush's Seth Basham says, keeping his Neutral rating on the stock. Analysts have a mixed view on Best Buy (BBY) with Seeking Alpha authors rating the stock as a Hold, while the average rating among Wall Street analysts is a Buy. Seeking Alpha's Quant Rating views Best Buy (BBY) as a Hold.

Best Buy's Growth Will Be Driven By AI And Margin Expansion Despite Mixed Sector Challenges: Analysts - Best Buy Co (NYSE:BBY)

Analysts raised price targets on Best Buy following quarterly results, citing solid strategy and growth potential. Several analysts raised the price target on Best Buy Co., Inc. BBY following better-than-expected second-quarter financial results reported Thursday. Best Buy reported fiscal second-quarter adjusted EPS of $1.34, beating the street view of $1.16, and sales of $9.29 billion beat the analyst consensus of $9.24 billion. The company raised the fiscal 2025 adjusted EPS outlook to $6.10 -- $6.35 (prior $5.75-$6.20) vs. the $6.08 estimate and cut the high end of its prior revenue outlook to $41.3 billion-$41.9 billion (prior $41.3 billion -- $42.6 billion) vs. the $41.81 billion estimate. J.P. Morgan analyst Christopher Horvers maintained an Overweight rating and raised the price target from $101 to $111. The analyst notes the pull-forward in spending on computing, TVs, and appliances is ending, with a higher installed base, supporting a soft landing this year. Additionally, the analyst projects that Best Buy will continue to benefit from ASP growth as AI adoption in consumer electronics advances. The analyst says the pathway to a 5% operating margin (up from 4.1% last year) is achievable, with the potential for 6% when key categories, especially home theater, rebound. Telsey Advisory Group analyst Joseph Feldman reiterated an Outperform rating and raised the price target to $115 from $95. The analyst writes that Best Buy has a solid strategy, strong leadership, and leads in omnichannel capabilities, real estate optimization, and new revenue streams like membership and health, which positions the company well for growth when the industry stabilizes. Feldman raised the 2024 EPS estimate to $6.33 from $6.18, with a lower comp of (2.1%) and a ten bps margin expansion to 4.2%. For 2025, the analyst now estimates EPS of $6.97, with a 2.0% comp and a 30 bps margin expansion to 4.5%. Piper Sandler analyst reaffirmed the Overweight rating and raised the price target to $114 from $100. The analyst writes that despite a negative second-quarter comp and a slight second-half downgrade, the share gain reflects robust EBIT margin expansion and better sales. With improving comps, efficient labor management, and growth in computing and tablets, the analyst sees a bright future driven by AI, PC replacement, and innovation. Truist Securities analyst Scot Ciccarelli maintained a Hold rating and increased the price target to $107 from $86. The analyst says that with pandemic-driven demand pull-forward easing (over 4 years since COVID), the CE upgrade cycle is expected to reassert itself. Laptop units stabilized in CY23 and showed positive first-quarter comps, with further improvements likely due to AI innovation. However, high-ticket items like appliances remain soft, down ~20% in the second-quarter, reflecting ongoing demand challenges, adds the analyst. Ciccarelli writes that the third quarter has started strong with flat comps and positive trends in laptops and tablets, which could also boost mobile as AI tech advances. Ciccarelli raised CY24/CY25 EPS estimates to $6.40/$6.95 from $6.25/$6.85 and introduced a CY26 estimate of $7.60. Apart from this, B of A Securities analyst Elizabeth Suzuki maintained Best Buy with an Underperform and raised the price target from $70 to $80. Loop Capital analyst Anthony Chukumba maintained a Buy rating and raised the price target from $100 to $110 and Evercore ISI Group analyst Greg Melich maintained an In-Line rating and boosted the price target from $90 to $94. Investors can gain access to the stock via Invesco Exchange-Traded Fund Trust II Invesco S&P Ultra Dividend Revenue ETF RDIV and DBX ETF Trust Xtrackers S&P ESG Dividend Aristocrats ETF SNPD. Price Action: BBY shares are down 1.10% at $99.08 at the last check Friday. Image via Shutterstock Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors. Market News and Data brought to you by Benzinga APIs