The electronics retailer Best Buy (BBY) made a strong showing on Tuesday, after two ratings agencies upgraded the company’s status. Citing the company’s recent willingness to “make tough decisions” and meet financial goals, as well as increasing competition in the mobile device market, Stifel Nicolaus’s David Schick upgraded the company’s stock to “buy”. Meanwhile Barclay’s upgraded it to “overweight”, with analyst Alan Rifkin noting the strength of holiday comps, increased cash-flow growth resulting from cost cuts, and continued vendor loyalty, as well as changes in management. The company’s share price rose slightly over 2.7 percent to close at $17.33.
This news comes after a January 9th low of $11.59, a time during which it was commonly thought that the retailer would finally succumb to the competition from online stores like Amazon (AMZN), in tandem with other retailers like Target (TGT) and Wal-Mart (WMT), all of whom have outperformed the company until very recently. All of this was compounded by persistent rumors about company’s founder Richard Shulze’s attempts to buy back the company and take it private.
But several variables have turned in Best Buy’s favor in the last month that may explain the fact that their performance is up 46.2 percent on the year, with a forward price-to-earnings ratio of just a touch over 8 percent.
Firstly, in a rather drastic move, the company has announced that it will offer its customers to match prices with several popular online retailers. As risky a play as some have interpreted this as, there is an undeniable logic to it. The practice of “showrooming”, in which Best Buy is for all intents and purposes used by shoppers as a free show room for products they intend to purchase later and cheaper at some online retailer, has hurt the company in terms of sales and prestige. While it may not completely put an end to showrooming, the price-matching scheme does offer the added benefit to consumers of being able to take their product home to enjoy immediately.
The other big break for the company comes in the form of pending bi-partisan tax legislation set for a vote sometime this year that would put in place federal regulations for taxing online retailers. With internet sales growing to over 5 percent of all sales in the United States, and no signs of slowing down, the current legislation allows Amazon and other online “e-tailers” to sell products, depending upon the state from which they are purchased, without charging their customers sales tax. This could potentially shift at least some of the momentum back in the favor of on-site retailers, and Best Buy especially, since if sales tax has to be paid either way, it could turn the wait for shipping into a much bigger nuisance than it currently is.
