Best Buy Earnings: Solid Quarter Overshadowed by Weak Industry Environment; Shares Remain Cheap

While narrow-moat Best Buy posted solid second-quarter results, a murky near-term industry environment will likely lead us to trim our $100 fair value estimate by a mid-single-digit percentage. More concretely, we now pencil in just 1.1% and 2.2% 10-year cumulative annual growth rates in revenue and operating income, respectively, down from 1.3% and 3.3%—as we expect sluggish industry sales, normalizing co-branded credit card profitability, and commensurate challenges generating operating leverage to limit long-term operating profit upside. Shares continue to look attractive.