Back in November I wrote that Best Buy would be a prime beneficiary of Circuit City’s bankruptcy and given that they were already one of the best run retailers in the country, the stock was cheap at a single digit P/E (around $25 per share). Today Best Buy reported blowout fourth quarter earnings and predicted 2009 earnings of $2.50 to $2.90 per share, which is well above current estimates of below $2.50.
Best Buy shares are up $5 (15%) today to more than $38 per share, which brings the gain since November to over 50 percent. If you have been riding this trend, the shares look close to fair value from my perspective. Taking the middle of the earnings guidance range and applying a 15 P/E (a bit higher than I would choose normally, due to the recession) I get fair value of about $40 per share, so it appears the stock’s huge move is largely behind us.
Full Disclosure: Peridot Capital was long shares of BBY at the time of writing, but positions may change at any time
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Blowout earnings? Didn’t they guide down recently? So they beat lowered guidance?
Wall Street is all about how you do relative to expectations. If expectations are low and you exceed them, your stock goes up. In this case, by 15%.
I call that “managing expectations”. Guide down, so you can step over the lowered bar. S/b a lot of that this quarter.
Have you looked at AMZN lately? Ridiculous!