Option Trade
Best Buy Co Inc (NYSE:BBY) Calls 
Monday, 22nd August, 2016

** OPTION TRADE: Buy the BBY DEC 16 2016 34.000 call at approximately $1.70. Place a pre-determined sell at $3.50.

Note: No protective stop losses added -- but if you wish to do so make it $0.70.

by Ian Harvey

August 22, 2016

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, is scheduled to release its second-quarter numbers before the market open on August 23. Analysts forecast earnings of $0.42 and sales of $8.42 billion for the quarter. During the same period last year the company had earnings of $0.49 per share and sales of $8.53 billion.

For the full year, earnings are expected to rise a modest 3.6%, but Best Buy has easily topped estimates the last four quarters, and if it can continue that streak with its second-quarter report, the full year growth could be much greater. Following two months of steady gains, profit taking has hit the stock a little over the last couple of weeks, but the stock would regain its upward momentum in the wake of another strong quarterly report.

The stock has a low valuation, with a P/E of just 11.2, so the stock has significant upside potential following another earnings beat.

The stock has been trending higher since its last earnings report at the start of summer, and shares are currently up 7.8% on the year.

Best Buy’s 50-day moving average is $32.66 and its 200 day moving average is $31.70. The firm has a market capitalization of $10.52 billion and a P/E ratio of 11.21. Best Buy has a 52 week low of $25.31 and a 52 week high of $39.10.

Why Best Buy?

Best Buy has been posting better-than-expected results over the last 14 quarters and the trend is expected to continue in the second-quarter of fiscal 2017. Improvement in online comparable sales, driven by higher traffic and conversion rates, is driving the company’s top line and bottom line.

In the previous quarter, the company reported a 23.9% surge in online comparable sales, driven by improved traffic and conversion rates. The company is investing extensively to upgrade its operations with special focus on developing omni-channel capacities and cementing its relationship with vendors.

Management had earlier projected Enterprise revenues between $8.35 billion and $8.45 billion for the fiscal second quarter. Comparable sales are expected to remain flat year over year. Management expects earnings in the range of 38 cents–42 cents per share.

Analyst Input

Best Buy Co. was upgraded by equities researchers at Vetr from a “sell” rating to a “hold” rating in a research note issued to investors last Tuesday. The brokerage presently has a $34.32 price target on the technology retailer’s stock. Vetr‘s target price points to a potential upside of 5.31% from the stock’s current price.

Also, several other equities research analysts have recently commented on the company.

• BTIG Research reaffirmed a “buy” rating on shares of Best Buy in a report on Tuesday, August 2nd.

• Piper Jaffray Cos. reaffirmed a “buy” rating and set a $31.00 price objective on shares of Best Buy in a report on Thursday, June 23rd.

• Credit Suisse Group AG lowered Best Buy from a “buy” rating to a “neutral” rating and dropped their price objective for the stock from $36.50 to $31.00 in a report on Wednesday, June 15th.

• Deutsche Bank AG lowered Best Buy from a “buy” rating to a “hold” rating and dropped their price objective for the stock from $38.00 to $32.00 in a report on Wednesday, May 25th.

• Finally, Barclays PLC reaffirmed a “buy” rating and set a $45.00 price objective on shares of Best Buy in a report on Thursday, June 23rd.

One analyst has rated the stock with a sell rating, eleven have assigned a hold rating and thirteen have issued a buy rating to the company. The company has a consensus rating of “Hold” and a consensus price target of $34.11.

Harvey’s Options Volatility Indicator

Conclusion

Best Buy stock has had a volatile year so far, bouncing between support near $30 and resistance at $35. BBY’s latest rally was cut short just as the shares appeared ready to break out above $35. Target’s poor earnings reception led to a nearly 3% haircut for Best Buy stock in sympathy.

But BBY needed a bit of a blow-off ahead of its quarterly report, as the shares were nearing overbought levels. As a result, Best Buy stock now has a bit more room to run heading into the week.

Wall Street is expecting Best Buy earnings to fall about 14% year-over-year to 43 cents per share. Revenue is seen slipping 1.6% to $8.4 billion. However, EarningsWhispers.com reports a whisper number of 48 cents per share for Best Buy. Hitting this target could provide the boost BBY stock needs to finally leave $35 in the rearview.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the BBY DEC 16 2016 34.000 call at approximately $1.70. Place a pre-determined sell at $3.50.

Note: No protective stop losses added -- but if you wish to do so make it $0.70.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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