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Best Buy's Target Boosted To $47 Following Q3 Results

Best Buy Co Inc BBY 1.35% reported robust Q3 results, with further market share gains driving meaningful comp growth.

UBS analyst Michael Lasser maintained a Neutral rating on the company, while raising the price target from $38 to $47.

“In the face of a declining category, BBY continues to outperform & take share,” Lasser mentioned, while reporting that same-store sales outperformed the industry in Q3, coming in at 1.8 percent.

The analyst believes Best Buy was able to take share from several competitors due to the company having developed a differentiated in-store experience, through “stores-within-stores."

What Is Driving Growth?

“By playing at the high-end of the market, it is probably driving better attach rates & building bigger baskets,” Lasser stated.

The company’s omnichannel investments also have been paying off, with ecommerce sales having grown 24 percent over the past three quarters, against the backdrop of a stable pricing environment.

According to the UBS report, “After its domestic GM contracted in 2Q, BBY allayed feared as its domestic segment's GM expanded 58 bps. By carrying the higher-end products, BBY has seen a positive margin mix shift.”

However, for the strategy to be sustainable in the long term, the analyst believes that product innovation would need to outpace deflation.

The International segment continued its turnaround during Q3, delivering operating income of $14 million.

The stock soared Thursday following the beat results.

DateFirmActionFromTo
Nov 2016Bank of AmericaUpgradesUnderperformNeutral
Nov 2016Evercore ISI GroupDowngradesHoldSell
Aug 2016UBSMaintainsNeutral

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