Consumer electronics retailer Best Buy (BBY) is scheduled to release first-quarter earnings on Tuesday. Unlike last quarter, analysts are looking for strong results, with earnings possibly exceeding their estimates.

Joseph Feldman, who covers Best Buy for S.G. Cowen & Co., says the company appears to have enjoyed better sales this quarter, driving earnings higher. Still, he says that the potential earnings upside -- and the likelihood that the firm will raise its outlook for the rest of the year -- is already reflected in the share price.

In April the company gave a disappointing earnings outlook for the first quarter and for the full year. Shares were hurt, but they've since rebounded and are now down less than 1% for the year.

Analysts, on average, estimate first-quarter earnings of 30 cents per share.

Even if the stock isn't in for a boost on Tuesday, Feldman says Best Buy is one of his favorite stocks. He says it is in a good position to take advantage of the digital electronics cycle and to gain market share. He also likes the company's long-term strategies, including service initiatives and plans to expand internationally.

Best Buy is the largest consumer-electronics retailer in the U.S. But it doesn't just sell electronics -- it also has a special focus on customer service. The retailer offers computer technical support through its Geek Squad business and is finding success with its "customer centricity" program, which allows stores to offer services tailored to different customer groups.

In April, Best Buy said it plans to open 20 to 50 stand-alone Geek Squad stores in urban areas over the next 12 to 18 months.

The company's services offerings have also caught the attention of Daryl Boehringer, an analyst at investment firm FTN Midwest. He upgraded the stock to "buy" from "sell" on Tuesday, saying Best Buy's primary services -- Geek Squad and home-theater installations -- are growing faster than he anticipated. Although he says the company will continue to face challenges in the first half of this year, he says the high-margin services are in the "early stages of growth" and should drive earnings higher through 2007.

Boehringer also points out that Best Buy had more than $3 billion in cash at the end of last quarter and generates nearly $1 billion in free cash flow per year. That should allow the company to invest in its business and repurchase shares.

Not everyone is excited about Best Buy's prospects, though. J.P. Morgan analyst Stephen Chick, for example, expresses concern that Street estimates for 2006, though lowered in April, may still be too high. He rates the stock "underweight."

At $59, shares sell for about 19 times the consensus earnings estimate of $3.04 per share for the fiscal year that ends next February. Shares yield 0.73%.

--Lisa Dixon

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