Can Best Buy Keep Going After Last Week's 21% Pop?

By Markets Fool.com

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There's no killingBest Buy (NYSE: BBY)these days. The consumer electronics retailer saw its shares soar 21% last week following a better-than-expected quarterly report and a wave of mostly bullish analyst notes.

The chain's quarter was a pleasant surprise. Enterprise revenue was flat at $8.53 billion, but that was with a dozen fewer namesake stores and 22 fewer of its smaller Best Buy Mobile units that closed over the past year. It was just ahead of its earlier guidance calling for the top line to clock in between $8.35 billion and $8.45 billion. Comps rose 0.8%, slightly above the flat comps it was targeting.

The news gets better on the bottom line where its adjusted profit of $0.57 a share blasted through its earlier outlook of $0.38 a share to $0.42 a share in earnings. Best Buy is clearly holding up a lot better than naysayers, and even the retailer itself, thought it would be doing at this point.

Wall Street sends love letters

Analysts responded with enhanced enthusiasm for the most part.

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  • SunTrust analyst David Magee stuck to his Buy rating, juicing up his price target from $39 to $45. He sees positive catalysts for the chain in the second half of the year, fueled by new gaming consoles, virtual reality platforms, and a stronger emphasis in big-ticket appliance sales.
  • Deutsche Bank analyst Mike Baker bumped his price target from $32 to $41. He sees the retailer gaining share in the market as the result of its strong vendor partnerships, but his opinion is that the consumer electronics industry itself will continue to be weak. He has a Hold rating on the shares.
  • Dan Wewer at Raymond James is sticking with his Strong Buy rating. He is jacking up his profit forecast for all of fiscal year 2017 following the beat. Like Magee, he's also increasing his price target to $45.

Two sides to every love story

Not every Wall Street pro was smitten. Wedbush's Michael Pachter is sticking to his bearish call and $20.50 price target that is roughly half of where Best Buy stock is now. He sees challenges during the latter half of the fiscal year, and unlike Magee he isn't hopeful that the positive catalysts will be major factors in the chain's overall performance. BofA/Merrill also stuck to its Underperform rating. It did raise its price target to $29, but that's still well below where the shares are currently perched.

There is concern among the more bearish analysts that Best Buy is running out of costs to cut. There is also the fear that the digital migration is real, a revolution that is pushing media purchases online.

Best Buy has been resilient in cyberspace. Domestic online sales rose nearly 24% during the quarter, and now account for 10.6% of the stateside sales. The spike in internet-based sales is actually the only reason why comps are positive, since, like many retailers, Best Buy divides those sales into existing stores to derive comparable-store sales.

There's no denying that this wasn't a blowout quarter. The real challenge here is what Best Buy does for an encore. It won't be easy to keep this up.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.