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Brian Sozzi Agrees With Jefferies' Downgrade Of Best Buy

Brian Sozzi Agrees With Jefferies' Downgrade Of Best Buy - Best Buy Co., Inc. NYSE:BBY

Jefferies' Dan Binder downgraded Best Buy's stock to Hold from Buy on Monday due to his concerns that a maturing 4K TV cycle will yield softer same-store sales and margins at Best Buy's stores.

Binder noted that selling prices for 4K TVs have fallen 30 percent on a trailing 12-month basis and Best Buy's peers are actually lowering their stock keeping unit (SKUs) counts in the 4K TV category.

Sozzi noted that around 32 percent of Best Buy's domestic sales throughout 2015 came from the consumer electronics section, including large-screen TVs as well as health and fitness products. He added that demand for large-screen TVs helped spur the consumer electronics segment but now a change in trends and sales ahead of the holiday season "might spook investors."

However, Sozzi pointed out that declining demand for 4K TVs isn't a phenomenon that has come unexpected. Best Buy's management cautioned investors during a May 24 conference call that "at some point" demand for TVs "will slow" and "at some point" the company won't be able to hold on to its dominant market share in the space.

Binder also lowered his 2017 fiscal year estimates in his downgrade note to $2.85 from $3.07 per share and also slashed his 2018 estimates to $3.01 from $3.42.

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