Options Trade – Best Buy Co Inc (NYSE:BBY) Calls 
Monday, March 02, 2015

**OPTIONS TRADE: Buy the BBY Jun 2015 40.000 call (BBY150619C00040000) at or under $1.90, good for the day. Place a protective stop loss at $1.15 and a pre-determined sell at $3.80.

by Ian Harvey

March 02, 2015


Best Buy Co Inc (NYSE: BBY), a multinational, multichannel retailer of technology products, including tablets and computers, televisions, mobile phones, large and small appliances, entertainment products, digital imaging and related accessories as well as and technology services, will report Q4 numbers before the market opens on March 3, with analysts forecasting earnings of $1.36 per share. During the same period last year, the company had earnings of 88 cents per share. The stock is down 1.7% on the year.

Best Buy is coming off a great quarter, and it is expected that there will be a follow-through of the Q3 report and another strong earnings report for its fourth quarter will be forthcoming. The company has worked hard to fight back against strong competition from online competitors, mainly Amazon (AMZN), and it has proven an ability to compete online. Last quarter the company reported an impressive 21.6% jump in online sales, and just as importantly a 2.4% rise in comparable same store sales. The biggest fear regarding Best Buy in recent years has been the impact that "showrooming" has had on in-store sales, but an increased focus on store layout and aggressive cost cutting has helped the company turn the corner.

Technical Details

Best Buy Co has a 1-year low of $23.87 and a 1-year high of $40.03. The stock’s 50-day moving average is $37.10 and its 200-day moving average is $35.00.

The company has a market cap of $13.364 billion and a P/E ratio of 13.15.


Best Buy Co last issued its quarterly earnings data on Thursday, November 20th. The company reported $0.32 EPS for the quarter, beating the Thomson Reuters consensus estimate of $0.25 by $0.07. The company had revenue of $9.38 billion for the quarter, compared to the consensus estimate of $9.11 billion.

During the same quarter in the prior year, the company posted $0.18 earnings per share. The company’s quarterly revenue was up .6% on a year-over-year basis. On average, analysts predict that Best Buy Co will post $2.41 earnings per share for the current fiscal year.

Positive Aspects

Best Buy has set some very lofty goals over the past three years in terms of cutting costs and driving traffic. This plan has included the closing of 50 big-box locations in favor of opening 100 mobile-focused stores, as well as price-matching Amazon.com in order to cut down on "showrooming," or the process by which consumers try out a product in-store then purchase it for a lower price from an online vendor. Wise investments in expanding Best Buy's online offerings have also helped boost its bottom line.

The proof is in the pudding based on Best Buy's holiday sales report. For the nine-week period ending Jan. 3, 2015, Best Buy saw comparable sales increase 2.5% from the previous year, with domestic comparable-store sales up an even more impressive 3.4%. Its online segment also delivered impressive comparable gains of 13.4%.

Analysts Opinions

In the latest statement by the brokerage house, Oppenheimer upgrades its outlook on Best Buy Co Inc. The current rating of the shares is Outperform, according to the research report released by the firm. Previously, the company had a rating of Perform. The brokerage firm announces the price target at $43 per share on the counter.

According to Brian Nagel, the analyst at Oppenheimer covering the company, Best Buy is going to continue facing a challenging retail environment, but "the worst is likely over." Nagel and Oppenheimer's view is that Best Buy's new management team has done a good job of reducing costs and improving the company's strategic position in order to succeed over the long term.

Additionally, Nagel suggests that the recent bankruptcy filing from RadioShack, along with ongoing weakness in Sears Holdings, bodes well for Best Buy, which could pick up significant market share in the electronics category. As a refresher, RadioShack filed for chapter 11 bankruptcy protection last week, and agreed to sell as many 2,400 stores to General Wireless.

All told, Nagel moved his company's rating on Best Buy from "perform" (the equivalent of a "hold") to "outperform," with a price target of $43. Based on Friday's closing price this implies further upside potential of 15%. Nagel suspects management may have set the bar low for the first half of 2015 and believes Best Buy is now set up to surpass expectations.

Also, Best Buy Co (NYSE:BBY) has earned a “BB-” credit rating from Morningstar. The research firm’s “BB-” rating suggests that the company is an above-average default risk. They also gave their stock a two star rating.

The company has been the subject of a number of research reports:-

• Analysts at B. Riley reiterated a “buy” rating and set a $47.00 price target on shares of Best Buy Co in a research note last Thursday.

• Analysts at Wedbush reiterated an “underperform” rating and set a $24.00 price target on shares of Best Buy Co in a research note last Thursday.

• Analysts at RBC Capital reiterated a “buy” rating and set a $42.00 price target on shares of Best Buy Co in a research note last Thursday.

• Finally, analysts at Vetr upgraded shares of Best Buy Co from a “hold” rating to a “buy” rating and set a $41.33 price target on the stock in a research note last Tuesday.

Shares of Best Buy Co have earned a consensus rating of “Buy” from the twenty-three brokerages that are currently covering the stock. One equities research analyst has rated the stock with a sell recommendation, three have issued a hold recommendation and eighteen have issued a buy recommendation on the company. The average 1-year price target among analysts that have issued a report on the stock in the last year is $41.46.


It is expected that BBY will have a decent quarter, as lower fuel costs should lead to higher consumer spending. Lower gas prices will lead to higher discretionary spending, and companies such as Best Buy that deal in discretionary products will see the biggest impact. Look for strong numbers, and if online sales continue to grow, the stock has a lot of upside potential from its current level. BBY has a P/E of just 13.4, so an upbeat report can really send the stock higher. While the valuation indicates good upside potential, it also signals that the downside is limited.

Therefore, based on the facts above the following options trade is recommended…..

**OPTIONS TRADE: Buy the BBY Jun 2015 40.000 call (BBY150619C00040000) at or under $1.90, good for the day. Place a protective stop loss at $1.15 and a pre-determined sell at $3.80.

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