Stock Watch

Best Buy: Still Strong

Wall Street analysts aren't expecting much from Best Buy's (BBY) quarterly earnings report, which is expected to be released Wednesday morning. The company is also expected to provide a potentially weak forecast for the upcoming fiscal year.

But don't write off the nation's largest consumer electronics retailer based on that, says Banc of America analyst Aram Rubinson.

Best Buy is a cash-rich industry leader. In addition to Best Buy stores, the company operates Future Shop, Magnolia Audio Video and Geek Squad. And unlike its discount competitors, it emphasizes a high degree of customer service.

Rubinson says the Street "appears to be worried about everything" with Best Buy's near-term outlook, including fears that the company may not be able to reach its goal of boosting operating profits to 7% of revenues by 2007.

The company warned in early March that its fourth-quarter performance would likely fall short of expectations, and analysts lowered their earnings estimates.

But Rubinson still has confidence in Best Buy. He reiterated his "buy" rating for the stock Tuesday morning. He says that although some of the Street's concerns are worrisome, investors should focus on the strength of the company. "The question before us is whether or not Best Buy is a good [or] great company. We believe the answer is yes."

Rubinson points out that Best Buy boasts $8 per share in cash and generates more than $850 million in free cash flow annually.

As long as Best Buy maintains its first-class status, he says, "the downside risk should be relatively small," no matter what happens to the stock on Wednesday in particular.

At $52, shares sell for about 16 times the consensus earnings estimate of $3.31 for the fiscal year ending February 2006. Rubinson says that's an attractive valuation. He says shares should reach $62 over the next 12 months.

--Lisa Dixon

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