Investors should pick up shares of “spring-loaded” Best Buy as trends look positive for the retailer, according to JPMorgan. Analyst Christopher Horvers upgraded his rating to overweight from neutral and increased his price target by $12 to $101. Horvers’ new target implies a 25.6% upside over Thursday’s closing price. “We think it makes sense to potentially be one to two quarters early on BBY given margin control/upside given computing trends could kick in during back to school (July-Sept),” he said. And that’s “with the relative valuation and margin flow-through indicating a spring-loaded stock.” Horvers said the wallet pull-forward in computers, TVs and appliances should be at or near its end point. Pull-forward occurs when the price of goods with long shelf lives go on promotion and consumers capitalize on the discounted price. Thus, a return to paying sticker price can boost margins. At the same time, he said deflationary headwinds should moderate in the second half of 2024 and help unit growth dynamics. Meanwhile, he said computing innovation can lead to new products at higher price points, which can also combat deflation. Best Buy has a conservative margin outlook, making the retailer more likely to beat its expectations. Specifically, Horvers pointed to the long-term margin expectation of 4.1%, which he noted is clearly below the pre-Covid level of 4.9% and peak of 6%. Unlike other stocks that have experienced a pandemic pull-forward, Horvers said Best Buy still has a relatively cheap valuation. The price-to-earnings multiple is about 6% below historical valuations, while he said other cyclical names tend to be significantly higher. BBY YTD mountain Best Buy, year to date Best Buy shares rose nearly 2% in Friday premarket trading. But the stock has underperformed the broader market this year, adding less than 3%.
