THE SPARK: Gary Balter of Credit Suisse reinstated coverage of Best Buy Co. on Wednesday with an "Outperform" rating and $30 price target. The analyst said in a client note that the electronics chain is the best near-term idea within the companies he covers.
Balter's reinstated coverage comes on the heels of upgrades of Best Buy by several analysts, including JPMorgan's Chris Horvers raising his rating to "Overweight" on Monday. Piper Jaffray's Peter Keith also boosted his rating to "Overweight" from "Neutral" earlier this month.
THE BIG PICTURE: Best Buy has been working to turn around its results as it faces tough competition from online retailers and discounters. The company has cut jobs, invested in training employees and started matching online prices. And its financial results show that the changes are beginning to help.
Earlier this month, the company reported that U.S. revenue in stores open at least 14 months rose 0.9 percent during the fourth quarter, the best performance in 11 quarters. The metric is a key measure of a retailer's health, because it excludes revenue from stores that recently opened or closed. Its adjusted earnings and revenue topped Wall Street's expectations.
THE ANALYSIS: Balter said that management difficulties and competition were among the factors that nearly sank Best Buy, but that the retailer's size and the incompetence of many if its former rivals has "kept it in the game and allowed it to get where it is today."
The analyst said that Best Buy has come up with a better product assortment and product displays and has improved its employee training and online efforts. Balter also says that vendors want Best Buy to succeed because they have struggled to make money in the electronics sector. The analyst feels the only way that the vendor can start to make more money is by working with retailers that can display their products and allow those retailers to profit from that display.
SHARE ACTION: Shares of Best Buy gained 83 cents, or 3.7 percent, to $23.08 in afternoon trading. The stock has jumped 88 percent since the start of the year, strong movement from its 52-week low of $11.20 on Dec. 27. The share's 52-week high of $27.95 was reached nearly a year ago, on March 23, 2012.