BBY – Market expectations are for Uniform ROA to stabilize at recent highs, but management’s concerns about comp sales growth, margins, and gross profits imply this may be too bullish

September 26, 2017

  • Best Buy Co., Inc. (BBY:USA) is currently trading near recent highs relative to UAFRS-based (Uniform) Earnings, with a 16.2x Uniform P/E. At these levels, the market is pricing in somewhat bullish expectations, which, given management’s concerns about comp sales growth, margins, and gross profits, may be unwarranted
  • Specifically, management may be concerned about the sustainability of higher-than-expected comparable sales growth across their major categories. They also appear to be downplaying concerns about margin pressures from e-commerce growth, and slowing gross profit growth. Should the firm fail to sustain Uniform ROA at recent highs, as management sentiment suggests, multiple compression and equity downside would be warranted

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