Best Buy Stock Has a Lot to Prove on Thursday

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We're about to find out if new smartphones can get Best Buy (NYSE: BBY) back on track as a surprising turnaround story. The leading consumer electronics superstore chain reports quarterly results before Thursday's market open.

Things didn't go so well last time out. Best Buy stock tumbled 12% the day it posted its fiscal second-quarter results. The second quarter itself was strong, with revenue and earnings exceeding expectations. However, the market was spooked during the subsequent earnings call as Best Buy warned about margins contracting during the seasonally potent fiscal fourth quarter. We'll get a bit more visibility on that front this week, but the moral of the story is that looking back isn't enough in assessing a financial report.

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Analysts are banking on healthy earnings growth in Thursday morning's release. Best Buy is expected to post a profit of $0.78 a share, well ahead of the $0.60 a share it served up a year earlier. Revenue is expected to clock in at $9.36 billion, a mere 4.6% ahead of the prior year but that still suggests another period of positive comps. Expansion has been largely a thing of the past as Best Buy relies on positive store-level sales and surging online transactions to drive top-line results.

Investors will once again be glued on the upcoming holiday shopping season. Best Buy warned this summer that investments in growth initiatives would weigh on bottom-line results, explaining why analysts are only holding out for 5% earnings-per-share growth for the fiscal fourth quarter.

Three weeks after its poorly received quarterly results, Best Buy hosted its first investor day in five years. The chain spelled out its vision for the next few years, and once again, the market didn't react favorably. Best Buy 2020 calls for more cost savings, but also a broader array of services. The presentation seemed positive with modest growth targets through the next three years, but with so much weight being placed on new services, it only introduced more unknowns for investors.

Best Buy is still in a good place. It's gaining market share, an amazing accomplishment for a stock that seemed like it would follow Circuit City into the bricks-and-mortar graveyard. Piper Jaffray analyst Peter Keith put out a bullish note on Best Buy last week, encouraged by strong earnings reports out of the two leading smartphone makers. Keith is sticking to his bullish overweight rating and his $68 price target.

A bullish analyst note just ahead of a report doesn't guarantee a slam-dunk showing, but it's an encouraging sign for a company that can use a good bounce after its prior quarterly report and investor day stumbles.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.