Are Shares of Best Buy Co., Inc. (BBY) Set for a Crash Landing? – J.C. Penney Company, Inc. (JCP), Hewlett-Packard Company (HPQ)

Page 1 of 2

Best Buy Co., Inc. (NYSE:BBY) rose as much as 6% during Wednesday’s trading after analysts at Jefferies upgraded the stock to “Buy,” and raised the firm’s price target from $13 to $24.

However, with shares of the electronics specialist up 60% so far in 2013, is it time to take some profits?

Best Buy Co., Inc. (NYSE:BBY)The good
Best Buy Co., Inc. (NYSE:BBY)’s fourth quarter fiscal 2013 results, announced last week, were certainly better than expected. On an adjusted basis, the company reported quarterly earnings per share of $1.64, versus analysts’ consensus estimates which called for $1.53. Revenue for the quarter also beat analysts’ expectations after squeaking out growth of 0.2%, to $16.71 billion.

As a result, adjusted free cash flow of $965 million came in on the high side of Best Buy’s previous guidance, which called for free cash flow between $850 million and $1.05 billion.

In addition, as Jefferies noted, Best Buy Co., Inc. (NYSE:BBY) is showing notable progress after its recent management shakeup brought in new blood with “experience in turnarounds and growth of both physical and online businesses” — a reference to CEO Hubert Joly’s previous experience in helping save the sinking ships of Vivendi’s video game business unit, privately owned consulting firm McKinsey & Co., and French-based Electronic Data Systems (now part of Hewlett-Packard Company (NYSE:HPQ)).

As it stands, investors are reassured that Joly has outlined a tangible turnaround plan, which seems to be bearing fruit. This is more than other plunging retailers like J.C. Penney Company, Inc. (NYSE:JCP) can say — for the time being, anyway. Still, Best Buy undoubtedly has plenty of work to do before it’s truly out of the woods.

As an aside, on the heels of J.C. Penney’s wretched quarterly earnings, does anyone else find it ironic that J.C. Penney Company, Inc. (NYSE:JCP)’s stock skyrocketed more than 17% the day it chose turnaround specialist and former Apple exec Ron Johnson as its CEO? Poor Best Buy Co., Inc. (NYSE:BBY), on the other hand, fell 10% the day it tapped Joly as its new CEO.

Now, however, while expectations have remained undoubtedly low regarding Best Buy’s ability to successfully compete against retail’s long-term oriented, 800-pound digital gorilla,, Inc. (NASDAQ:AMZN), the stock’s 60% jump in the past two months alone shows that investors are clinging to the hope that all isn’t lost quite yet. Even after the rally, shares of Best Buy are still down more than 20% over the past year, so they could have even more room to run should the company continue to show progress in stabilizing its operations.

The bad
With this in mind, by opting not to provide fiscal 2014 guidance, Best Buy’s management sure isn’t giving investors much to help predict when that stabilization might actually occur. However, CFO Sharon McCollam was quick to warn investors that the company expects its “first quarter to be under significant pressure.”

Why? In addition to the fact that pre-Super Bowl television sales were shifted into its fourth quarter results, Best Buy Co., Inc. (NYSE:BBY) will surely suffer from the impact of its recently launched online price match program, with which it hopes to prevent consumers from “showrooming” — that is, stepping into a physical Best Buy location only to get a first-hand peek of the products that they intend to purchase at a cheaper price online.

Page 1 of 2