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Best Buy stock could tank 20%, Goldman warns

Brian Sozzi
·Executive Editor
·3-min read

Best Buy stock is getting little love from Wall Street after a lackluster second quarter and under-whelming earnings call where execs walked back longer-term financial targets.

First, in a new note on Wednesday, Citi analyst Steven Zaccone maintained a sell rating on Best Buy. And now, Goldman Sachs analyst Kate McShane is offering up the same post-earnings vibe on Best Buy's stock in a report titled: "Expect demand to remain pressured by macro headwinds; reiterate Sell"

Here's what McShane had to say.

  • Price Target: $56

  • Rating: Sell (reiterated)

  • Stock price movement assumed: -22%

  • Stock movement as of midday trading Wednesday: -3%

McShane's call:

"We reiterate our sell rating as we expect demand to remain pressured due to macro headwinds and lapping challenging comparisons, and we do not expect profitability to improve meaningfully in the near term," McShane wrote. "Key takeaways from the call include 1) softer-than-expected demand is weighing on the company’s top line and margins, despite efforts to reduce costs, 2) promotions are back to pre-pandemic levels resulting in product margin pressure, and Best Buy is seeing trade down and increased customer interest in sale events, and 3) management is removing the fiscal year 2025 targets due to the current macro environment."

Here's McShane's profit forecasting:

"We are lowering our fiscal year 2023 EPS estimate to $5.97 (from $6.26) to reflect the second quarter result as well as lower second half sales and margin expectations," McShane noted. "We are also lowering our fiscal year 2024 and fiscal year 2025 EPS estimates to $7.15 (from $7.53) and $8.59 (from $9.07), respectively."

People walk past a Best Buy store in Manhattan, New York City, U.S., November 22, 2021. REUTERS/Andrew Kelly
People walk past a Best Buy store in Manhattan, New York City, U.S., November 22, 2021. REUTERS/Andrew Kelly (Andrew Kelly / reuters)

The retail industry vibe:

Second-quarter earnings season has been brutal for retailers, headlined by lackluster reports and guidance from Best Buy, Kohl's, Big Lots, Abercrombie & Fitch, Nordstrom, and others.

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For its part, Bed Bath & Beyond said Wednesday that comparable same-store sales crashed 26% in the second quarter. The company announced a series of operational changes early on Wednesday.

Several risks confront the sector as investors turn their attention to the crucial holiday season.

First, inventory levels are absurdly too high given sales trends. Second, retailers are aggressively promoting products at the expense of profit margins. And third, the start of the key back-to-school shopping season has been mixed at best (see slow start for Best Buy) as inflation-weary shoppers pull back on certain discretionary spending categories.

From the Yahoo Finance Live archives: HP CEO Enrique Lores weighs in on demand for PCs

"This is something that we were expecting, a slowdown in consumer, but clearly the slowdown was bigger than we were expecting, and this had an impact on sales," HP CEO Enrique Lores told Yahoo Finance Live following a sales miss late Tuesday.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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