Best Buy downgraded by JP Morgan amid sales concerns
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Dec 18 2024
0mins
Should l Buy BBY?
Source: Investing.com
Best Buy Co Inc's shares rose by 5.00% and reached a 5-day high despite the broader market decline, with the Nasdaq-100 down 1.10% and the S&P 500 down 0.12%.
The stock's movement comes amid a downgrade from JP Morgan, which lowered Best Buy's rating from Overweight to Neutral and cut the price target significantly from $99 to $76. This downgrade reflects concerns over slowing sales, particularly with a projected -3% decline in comparable sales for Q4 fiscal 2025, and increased competitive pressures in the consumer electronics market. The analyst also reduced EPS estimates for fiscal years 2025 and 2026, indicating a challenging environment for the retailer.
The implications of this downgrade suggest that while the stock has seen a short-term increase, the long-term outlook remains uncertain. Investors may need to consider the potential impact of market conditions and competitive pressures on Best Buy's performance moving forward.
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Analyst Views on BBY
Wall Street analysts forecast BBY stock price to rise over the next 12 months. According to Wall Street analysts, the average 1-year price target for BBY is 83.33 USD with a low forecast of 60.00 USD and a high forecast of 99.00 USD. However, analyst price targets are subjective and often lag stock prices, so investors should focus on the objective reasons behind analyst rating changes, which better reflect the company's fundamentals.
12 Analyst Rating
5 Buy
6 Hold
1 Sell
Moderate Buy
Current: 68.180
Low
60.00
Averages
83.33
High
99.00
Current: 68.180
Low
60.00
Averages
83.33
High
99.00
About BBY
Best Buy Co., Inc. is engaged in personalizing and humanizing technology solutions. The Company has two segments: Domestic and International. The Domestic segment comprises its operations in all states, districts and territories of the United States and its Best Buy Health business and includes the brand names Best Buy, Best Buy Ads, Best Buy Business, Best Buy Essentials, Best Buy Health, Geek Squad, Imagine That, Insignia, Lively, My Best Buy, My Best Buy Memberships, Pacific Kitchen and Home, TechLiquidators and Yardbird; and the domain names bestbuy.com, lively.com, techliquidators.com and yardbird.com. The International segment comprises all its operations in Canada under the brand names Best Buy, Best Buy Express, Best Buy Mobile, Geek Squad and TechLiquidators and the domain names bestbuy.ca and techliquidators.ca. The Company’s product categories include computing and mobile phones, consumer electronics, appliances, entertainment, services and others.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
Best Buy Options Analysis and Yield Potential
- Put Option Appeal: Selling a put option at a $57.00 strike price allows investors to collect a 50-cent premium, lowering their cost basis to $56.50, which represents a 16% discount compared to the current stock price of $67.49, making it attractive for those interested in BBY shares.
- Yield Potential Analysis: If the put option expires worthless, the premium would yield a 0.88% return on cash commitment, or an annualized 6.41%, referred to as YieldBoost, highlighting the potential profitability of options trading.
- Call Option Returns: Selling a call option at a $68.00 strike price allows investors to collect a $2.51 premium on the current stock price of $67.49, resulting in a total return of 4.47% if the stock is called away, though it risks missing out on further upside potential.
- Volatility Comparison: The implied volatility for the put option is 62%, while for the call option it is 48%, with an actual trailing twelve-month volatility of 45%, providing critical metrics for investors to assess risk and return, aiding in more informed investment decisions.
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JPMorgan Updates Stock Favorites List for February
- New Additions: JPMorgan's February favorites list includes First Industrial Realty Trust, a Chicago-based industrial real estate owner, whose shares have risen nearly 8% over the past year but remain below the 2021 all-time high, indicating relative value and growth potential.
- Improving Fundamentals: Analyst Ken Goldman highlighted that industrial fundamentals are improving, and First Industrial Realty Trust is well-positioned to leverage its substantial development pipeline, thus providing a solid investment opportunity for stakeholders.
- Stocks Retained: JPMorgan maintains its bullish stance on Boeing and Microsoft, despite a sell-off in Microsoft shares due to slight misses in cloud service growth; the bank reiterates its overweight rating, emphasizing the importance of the Azure revenue base.
- Stocks Removed: The bank has removed Best Buy, Burlington Stores, and Regency Centers from its February list, downgrading Best Buy and Regency to neutral while keeping Burlington at overweight, reflecting a cautious outlook on these retailers.
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Best Buy Faces Short-Term Challenges Ahead
- Rating Downgrade: JP Morgan analyst Christopher Horvers downgraded Best Buy from Overweight to Neutral and cut the December 2026 price target from $99 to $76, reflecting concerns over slowing sales and limited visibility on long-term recovery for the retailer.
- Earnings Outlook Cut: Horvers reduced adjusted EPS estimates for fiscal 2025 from $6.45 to $6.23 and for fiscal 2026 from $7.09 to $6.36, primarily due to a tougher fourth-quarter setup and fading category tailwinds impacting performance.
- Sales Forecast Dims: For Q4 fiscal 2025, Horvers models a -3% comparable sales decline, with a 21.0% gross margin and 4.9% operating margin, projecting EPS at $2.40, all below Street expectations, indicating weaker-than-anticipated consumer electronics demand.
- Increased Competitive Pressure: Horvers notes a narrowing price-performance gap between value and premium electronics brands, which could pressure ticket size and mix, while TVs and appliances face challenges due to slow housing turnover limiting recovery.
See More
Key Takeaways from CNBC Investing Club Morning Meeting
- Market Reaction Analysis: Despite a more than 30% drop in silver and Bitcoin falling below $80,000 last Friday, the S&P 500 opened higher at the start of the new month, indicating investor resilience and potential opportunities amidst volatility.
- Nvidia and OpenAI Deal Dynamics: Nvidia's $100 billion deal with OpenAI is currently on hold due to CEO Jensen Huang's private criticism of OpenAI's lack of discipline, although he refuted these claims, highlighting the complexities of deal structure impacting decision-making.
- Eaton Stock Surge: Eaton's shares rose approximately 1.4% on Monday, following a nearly 6% increase last week after announcing the spinoff of its mobility business, reflecting market recognition of its long-term electrification and AI data center strategy despite recent underwhelming performance.
- Rapid Trade Review: Stocks covered in Monday's rapid-fire segment included Disney, Best Buy, and Coterra Energy, showcasing the Club's focus on a diversified portfolio while emphasizing the alert mechanism before executing trades.
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Best Buy Faces Sales Challenges Amid Market Pressures
- Sales Downgrade: J.P. Morgan downgraded Best Buy's rating from Overweight to Neutral, reducing the target price by 23% to $76, reflecting concerns over future sales growth, particularly as the anticipated boosts from 2025 tax refunds and hardware updates may not offset tough comparisons to 2025.
- Market Uncertainty: Despite strong comparable sales and margin upside in Q3, the lack of specificity on quarter-to-date trends has raised doubts about the company's outlook, especially as December sales did not rebound as expected amid consumer uncertainty related to tariff inflation and labor market concerns.
- Memory Market Pressures: J.P. Morgan's tech analysts expect computer memory costs to double, prompting most PC brands to raise new product prices by 20% to 30%, which could impact Best Buy's core business as PC sales are projected to decline in high single digits in 2026.
- Unfavorable Earnings Forecast: Horvers models a -3% total/U.S. comparable sales for Q4, with a slight increase in gross margin to 21.0%, but the company's guidance appears overly optimistic given the sluggish housing market, which may hinder continued growth in computing, mobile, and gaming sectors.
See More
BEST BUY STOCK FALLS NEARLY 3% FOLLOWING JP MORGAN'S 'NEUTRAL' RATING ADJUSTMENT
- Best Buy Shares Decline: Best Buy's shares have dropped approximately 3% following a recent downgrade by JP Morgan.
- JP Morgan's Rating Change: The downgrade was a shift to a 'neutral' rating, indicating a more cautious outlook on Best Buy's stock performance.
See More
Best Buy Options Analysis and Yield Potential
- Put Option Appeal: Selling a put option at a $57.00 strike price allows investors to collect a 50-cent premium, lowering their cost basis to $56.50, which represents a 16% discount compared to the current stock price of $67.49, making it attractive for those interested in BBY shares.
- Yield Potential Analysis: If the put option expires worthless, the premium would yield a 0.88% return on cash commitment, or an annualized 6.41%, referred to as YieldBoost, highlighting the potential profitability of options trading.
- Call Option Returns: Selling a call option at a $68.00 strike price allows investors to collect a $2.51 premium on the current stock price of $67.49, resulting in a total return of 4.47% if the stock is called away, though it risks missing out on further upside potential.
- Volatility Comparison: The implied volatility for the put option is 62%, while for the call option it is 48%, with an actual trailing twelve-month volatility of 45%, providing critical metrics for investors to assess risk and return, aiding in more informed investment decisions.
See More
JPMorgan Updates Stock Favorites List for February
- New Additions: JPMorgan's February favorites list includes First Industrial Realty Trust, a Chicago-based industrial real estate owner, whose shares have risen nearly 8% over the past year but remain below the 2021 all-time high, indicating relative value and growth potential.
- Improving Fundamentals: Analyst Ken Goldman highlighted that industrial fundamentals are improving, and First Industrial Realty Trust is well-positioned to leverage its substantial development pipeline, thus providing a solid investment opportunity for stakeholders.
- Stocks Retained: JPMorgan maintains its bullish stance on Boeing and Microsoft, despite a sell-off in Microsoft shares due to slight misses in cloud service growth; the bank reiterates its overweight rating, emphasizing the importance of the Azure revenue base.
- Stocks Removed: The bank has removed Best Buy, Burlington Stores, and Regency Centers from its February list, downgrading Best Buy and Regency to neutral while keeping Burlington at overweight, reflecting a cautious outlook on these retailers.
See More
Best Buy Faces Short-Term Challenges Ahead
- Rating Downgrade: JP Morgan analyst Christopher Horvers downgraded Best Buy from Overweight to Neutral and cut the December 2026 price target from $99 to $76, reflecting concerns over slowing sales and limited visibility on long-term recovery for the retailer.
- Earnings Outlook Cut: Horvers reduced adjusted EPS estimates for fiscal 2025 from $6.45 to $6.23 and for fiscal 2026 from $7.09 to $6.36, primarily due to a tougher fourth-quarter setup and fading category tailwinds impacting performance.
- Sales Forecast Dims: For Q4 fiscal 2025, Horvers models a -3% comparable sales decline, with a 21.0% gross margin and 4.9% operating margin, projecting EPS at $2.40, all below Street expectations, indicating weaker-than-anticipated consumer electronics demand.
- Increased Competitive Pressure: Horvers notes a narrowing price-performance gap between value and premium electronics brands, which could pressure ticket size and mix, while TVs and appliances face challenges due to slow housing turnover limiting recovery.
See More
Key Takeaways from CNBC Investing Club Morning Meeting
- Market Reaction Analysis: Despite a more than 30% drop in silver and Bitcoin falling below $80,000 last Friday, the S&P 500 opened higher at the start of the new month, indicating investor resilience and potential opportunities amidst volatility.
- Nvidia and OpenAI Deal Dynamics: Nvidia's $100 billion deal with OpenAI is currently on hold due to CEO Jensen Huang's private criticism of OpenAI's lack of discipline, although he refuted these claims, highlighting the complexities of deal structure impacting decision-making.
- Eaton Stock Surge: Eaton's shares rose approximately 1.4% on Monday, following a nearly 6% increase last week after announcing the spinoff of its mobility business, reflecting market recognition of its long-term electrification and AI data center strategy despite recent underwhelming performance.
- Rapid Trade Review: Stocks covered in Monday's rapid-fire segment included Disney, Best Buy, and Coterra Energy, showcasing the Club's focus on a diversified portfolio while emphasizing the alert mechanism before executing trades.
See More
Best Buy Faces Sales Challenges Amid Market Pressures
- Sales Downgrade: J.P. Morgan downgraded Best Buy's rating from Overweight to Neutral, reducing the target price by 23% to $76, reflecting concerns over future sales growth, particularly as the anticipated boosts from 2025 tax refunds and hardware updates may not offset tough comparisons to 2025.
- Market Uncertainty: Despite strong comparable sales and margin upside in Q3, the lack of specificity on quarter-to-date trends has raised doubts about the company's outlook, especially as December sales did not rebound as expected amid consumer uncertainty related to tariff inflation and labor market concerns.
- Memory Market Pressures: J.P. Morgan's tech analysts expect computer memory costs to double, prompting most PC brands to raise new product prices by 20% to 30%, which could impact Best Buy's core business as PC sales are projected to decline in high single digits in 2026.
- Unfavorable Earnings Forecast: Horvers models a -3% total/U.S. comparable sales for Q4, with a slight increase in gross margin to 21.0%, but the company's guidance appears overly optimistic given the sluggish housing market, which may hinder continued growth in computing, mobile, and gaming sectors.
See More
BEST BUY STOCK FALLS NEARLY 3% FOLLOWING JP MORGAN'S 'NEUTRAL' RATING ADJUSTMENT
- Best Buy Shares Decline: Best Buy's shares have dropped approximately 3% following a recent downgrade by JP Morgan.
- JP Morgan's Rating Change: The downgrade was a shift to a 'neutral' rating, indicating a more cautious outlook on Best Buy's stock performance.
See More
