Earnings Sneak Peek: Is Best Buy (BBY) Ready To Regain Its Footing?

Earnings Estimates (High/Mean/Low): $0.51 / $0.442 / $0.35

Best Buy Inc. (NYSE: BBY) is set to release its 2Q earnings results this Tuesday before the bell, and reports of slowing consumer spending have many analysts bracing for the worst.  Shares of BBY, which generates nearly $50 billion in revenue annually, have been taken out to the woodshed over the past few months.  Since hitting near-term highs of $48.83 on April 26th, BBY traded as low as $30.90 on August 27th, good for a 37% drop, or  a drop of approx. $6 billion in terms of market cap.  Now carrying a TTM P/E at levels not seen since the beginning of the ’09 advance, the question on investors minds is whether BBY has become a value investment or a value trap.

BBY is not devoid of near-term catalysts, as the company has announced a midnight opening on Tuesday for the release of Halo: Reach, one of the most hyped games of the year.  Indeed, Chris Homeister, Senior VP and GM of Home Entertainment added that, “Halo: Reach is without a doubt one of the most anticipated games of the year, and we felt there’s no better way to celebrate the launch than to offer fans a special gift card incentive when they visit us in store or online to purchase their game.”  Homeister was referring to a contemporaneously announced special offer of a $20 gift card for anyone who purchases Halo: Reach or an X-Box 360 console through September 18th.

BBY has beaten estimates in eight of the past eleven Qs and two of the past four.  Mean estimates of $0.442 represent a 22% YoY increase and a 23% gain sequentially.

The weekly chart below demonstrates that BBY has not traded as low as it has as of late since last July, indicating that risk to the downside post-earnings has been mitigated.  Such may well be the case, but going long ahead of the report remains a bold move.  The prudent move here is to act after the news is out, as a downside surprise could push shares into conflict with significant support levels, and a move to the upside is not likely to be priced in immediately, given the steepness of BBY’s recent drop.

Disclosure: No holdings in BBY.