Analyst Note| Sean Dunlop |
We take a positive stance on narrow-moat Best Buy's fourth-quarter earnings and analyst day presentation, with all signs suggesting that the retailer has emerged from the pandemic a structurally stronger business. Quarterly earnings were solid but unspectacular, with $51.8 billion in annual sales and $9.84 in diluted EPS narrowly edging our previous forecasts of $51.7 and $9.71, respectively. Far more importantly, a digital business that has doubled its prepandemic run-rate (to 34% of sales, or $17.5 billion), meaningful sales leverage, and upside from the firm's Totaltech loyalty program, nascent advertising business, and Health segment point to a solid future for the consumer electronics stalwart. We expect to raise our $116 fair value estimate by about 10%, with roughly 4% of the change attributable to the removal of our prior expectation for a 5-point bump in the U.S. tax rate.