Best Buy Co., Inc. (NYSE: BBY) is in a virtual conundrum.  The stock has been hitting 52-week lows after a new fresh low of $31.25 Wednesday versus a $32.48 close on the same day and a $31.93 close on Thursday.  The problem is that Best Buy has not officially changed any guidance in quite some time despite a slew of retail earnings having been seen from peers in recent weeks.  Still, it has lost more than one-third of its value from the April highs.

It is no longer any secret that technology companies are facing rising inventories, nor that retail sales and the economy went into a slide to much slower growth or negative growth.  If PCs and devices and video game consoles and all the other tech gadgets are seeing a slow-down or lower growth, then there is just about no way that Best Buy can be entirely immune.

The company has also had several developments to watch.  It is starting to offer store credits for used video games.  The company named a new chief design officer this week with an impressive assortment of clients and companies before.  It bought the naming rights for a 2,100-seat theater in New York City’s Times Square. It is starting to test a location-based retail experiment, using the “shopkick” mobile application rewards system for special offers.  Goldman Sachs cut its rating to Neutral” on Aug. 10.  Even RadioShack’s buyout looks dead now over a lack of buyer enthusiasm for what lies ahead. Jefferies cut its rating to “Hold” back on July 9.

Best Buy admitted back on June 15 that its quarterly results were below expectations.  It also remained confident that actions would “support increased margin expansion during the fiscal year.”  The company also said on the same day that it continues to expect solid top-line growth (revenue growth) and annual margin expansion to approximately 5% of 2011 revenues.  The company also reiterated its fiscal 2011 guidance from March 25, 2010, where it guided earnings to $3.45 to $3.60 EPS and gave a 5% to 7% revenue growth target of $52 billion to $53 billion.  It was also on June 24, 2010 that Best Buy raised its dividend to $0.15 per quarter from $0.14 per quarter.

Here is some basic share price data from above:

• March 25: $42.35 on earnings day
• April 26: 52-week high of $48.83
• June 15: $38.40 on earnings day
• August 20: broke 52-week low of $32.49

The new 52-week trading range is $31.25 to $48.83 now that new 52-week lows were put in this week.

If you still trust Best Buy’s guidance for this Fiscal Year, that $3.45 to $3.60, then Best Buy trades at about 9.3-times earnings on the high-end to 8.0-times earnings on the lower end.  No matter how you cut it, that is not expensive on the surface.  Unless there is a double-dip recession.  Thomson Reuters now has estimates at $3.43 EPS for the year, implying a forward P/E ratio of about 9.3… For Fiscal Feb-2012, Thomson Reuters has estimates at $3.79 EPS, implying a full year and a half out forward P/E ratio of just under 8.5.

Whether lower guidance is coming or not, the current estimates from the street are already under Best Buy’s prior guidance.  This values the chain at a deep discount to its large peers in all sectors versus RadioShack Corp. (NYSE: RSH), Wal-Mart Stores Inc. (NYSE: WMT), Target Corporation (NYSE: TGT), Costco Wholesale Corporation and on.  The exception is GameStop Corp. (NYSE: GME) with it having lower forward earnings multiples from analysts, but GemaStop has been suffering from problems of its own as it is focused solely on the video game retailing.

So it seems that an earnings warning should be baked into the cake here for Best Buy.  There is one thought that might not be baked in.  It is possible that Best Buy’s next guidance won’t be trimmed excessively.  If Best Buy only talks its sales and earnings down by a few percentage points, after having lost one-third of its value it might actually start to perform again.

JON C. OGG

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