Best Buy Marching Ahead Of The Industry: What's Driving It?

In the past six months, Best Buy Co., Inc. (NYSE:BBY) has exhibited an impressive run in the index. The stock has not only outperformed the Zacks categorized Retail-Consumer Electronic industry but also the broader sector. In the said period, the stock has increased 23.3%, while the industry gained 15.5%. Meanwhile, the broader Retail-Wholesale sector advanced 3.2%. Let’s delve deeper and find out what are the factors driving the stock higher.

Strategic Initiatives

The company is making extensive investments to upgrade operations with special focus on developing omni-channel capabilities and strengthening partnership with vendors. Further, owing to the shift in consumer buying behavior, retailers find the store-in-a-store concept more viable and profitable to reach their target group. We believe that the strategy seems compelling to most retailers and is often considered a game changer as it facilitates the display of different brands under one roof and ensures a larger footfall.

Moreover, following the successful completion of “Renew Blue” program the company has launched a fresh strategy called “Best Buy 2020: Building the New Blue”. Under this strategy, the top most priority for fiscal 2018 will be exploring and pursuing growth opportunities, better execution in key areas and cost optimization. Under the “Renew Blue” program, the company has already achieved $350 million of cost reduction target out of $400 million.

Stock on a Value Oriented Path

While the stock has outperformed the industry as well as the broader sector there is still a value-oriented path ahead, as validated by Value Score of “A”. Considering price-to-book (P/B) ratio, Best Buy looks pretty attractive when compared with the sector. The stock has a trailing 12-month P/B ratio of 3.2, which is above its median level of 2.87 but below the high level of 3.67 scaled in the past one year. On the contrary, the trailing 12-month P/B ratio for the sector is 4.28.

Impressive Earnings Streak

The Zacks Rank #1 (Strong Buy) company has reported better-than-expected earnings for the seventeenth straight quarter. In the trailing four quarters, the company’s earnings have surpassed the Zacks Consensus Estimate by an average of 27.7%. The company’s long-term earnings growth rate is pegged at 10.5%.

For the fiscal 2018, management forecasts Enterprise revenues (including 53rd week) growth of 1.5%. On a 52-week basis, the company anticipates adjusted operating income growth rate in the low-single digits. On the 52-week basis, it expects enterprise revenues to be flat year over year.

For first-quarter fiscal 2018, management forecasts Enterprise revenues between $8.2 billion and $8.3 billion and comparable sales decline of 1–2%. Management also projects earnings in the range of 30–40 cents a share.

Other Stocks to Consider

Top-ranked stocks in the retail sector that warrant a look include Kate Spade & Company (NYSE:KATE) , The Children's Place, Inc. (NASDAQ:PLCE) and Foot Locker, Inc. (NYSE:FL) . Children's Place sports a Zacks Rank #1 while Kate Spade & Company and Foot Locker carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kate Spade & Company delivered an average positive earnings surprise of 14.6% in the trailing four quarters and has a long-term earnings growth rate of 28.3%.

Children's Place delivered an average positive earnings surprise of 39% in the trailing four quarters and has a long-term earnings growth rate of 10.3%.

Foot Locker delivered an average positive earnings surprise of 2.2% in the trailing four quarters and has a long-term earnings growth rate of 9.7%.

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