Goldman Sachs analyst Kate McShane upgraded Best Buy Co., Inc
McShane sees the potential for a positive demand inflection to drive upside for Best Buy, primarily through multiple expansions.
The analyst highlighted the recent commentary surrounding stabilizing demand for certain tech products and sees the potential for demand to stabilize and/or recover next year, supported by innovation and the upgrade/replacement cycle.
Industry-wide demand for consumer electronics may be on the path to recovery, at least with regard to two of BBY's more important product categories: TVs and laptops, the analyst writes.
The analyst further notes that BBY is lapping several quarters of declining comparable sales, setting a relatively low bar, while this year could also be the low-water mark for margins.
McShane believes the company's current valuation is not considering this potential inflection and is most likely factoring in broader concerns regarding consumer health and potential near-term demand headwinds.
From a valuation perspective, McShane thinks BBY is currently trading below historical averages on an EV/EBITDA (NTM) basis, and sees the potential for better-than-expected demand as the catalyst for a multiple re-rating.
Downside risks include if demand for consumer electronics remains pressured for longer than expected, weighing on BBY's top line and margin, flags McShane.
Price Action: BBY shares are trading higher by 0.24% to $70.37 on the last check Thursday.
