Best Buy Headlines Busy Week of Retail Earnings

This week will be a short but busy one on Wall Street.

U.S. stock markets are closed Thursday for the Thanksgiving holiday and trading will end early on Friday. However, there's still plenty of action packed into the three days leading up to the holiday, with Best Buy (BBY, $136.81) among several retail companies set to report earnings.

According to the earnings calendar, the big box retailer will unveil its third-quarter report ahead of Tuesday's open. Shares have been racing higher since early October – up roughly 30% to trade in record-high territory – and a positive reaction to earnings could keep the wind at the consumer stock's back.

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Analysts, on average, are looking for Best Buy to report an 8.3% year-over-year decline in earnings to $1.89 per share. Revenue is also expected to take a step back, with the $11.53 billion expected down 2.3% from what the company reported a year ago.

Still, UBS analyst Michael Lasser (Neutral) feels Best Buy is "well positioned to report another set of solid results in the third quarter, even as it faces steep compares."

He also believes Best Buy "continued to execute on a favorable industry backdrop in the third quarter" and that "strong vendor relationships" have been critical to the company navigating global supply chain disruptions.

However, "The key for BBY's investment case is how will it perform into 2022 when spending is likely to shift away from the consumer electronics category," Lasser says. "Its strategies can likely cushion the impact." Among these strategies is the company's recently launched Totaltech around-the-clock tech support membership program, which he believes "offers good near-term potential."

Argus Research analyst Chris Graja (Hold) admits the company is facing some major challenges – COVID-19 disruptions, strong competition, and product innovation that is consolidating music, gaming and computing into lower-margin devices like smartphones and tablets, for instance – but it has also positioned itself well for the long term.

"Best Buy's online capabilities and curbside service are helping the company through the COVID-19 crisis," Graja writes in a note. "We see this as a validation of the company's investments in its e-commerce infrastructure and management's ability to adapt."

Oppenheimer analyst Brian Nagel agrees.

"BBY performed well through the coronavirus crisis and capitalized upon stepped-up demand for consumer electronics and home office-type products, as workers and students adapted quickly to hybrid or fully at-home models," he says.

Nagel currently has a Perform (Hold) rating on BBY, but adds that he is "optimistic that as pandemic pressures continue to subside that a more-efficient and potentially more-profitable Best Buy model should emerge."

Mantle Ridge Stake Grabs Attention Ahead of Dollar Tree Earnings

Dollar Tree (DLTR, $134.24) made headlines recently on reports activist investor Mantle Ridge took a stake in the discount retailer. The news was well-received on Wall Street, with DLTR stock surging more than 14% in reaction.

According to the Wall Street Journal – which first reported the story – Mantle Ridge is planning to push for pricing strategy changes at DLTR's Family Dollar chain.

"This investor has a history of being deeply involved in situations where companies have been transformed through operational improvements," says UBS analyst Michael Lasser (Buy). "The bottom line is that this development should mean that DLTR will now be held more accountable for producing consistent results. In this case, the upside potential for the shares is significant."

Deutsche Bank analyst Krisztina Katai (Buy) agrees. She recently lifted her price target on DLTR to $146 from $96, saying "the added element of a new large shareholder with a clear focus on unlocking meaningful value by closing the profitability gap between Family Dollar and Dollar General (DG) should lead to a more patient investor base with a longer-term focus."

She adds that this now creates "one of the most compelling retail stories with an exciting narrative change underway."

But what about DLTR's third-quarter earnings report, due out ahead of the Nov. 23 open? Analysts, on average, are expecting earnings to arrive at 96 cents per share, down 30.9% on a year-over-year (YoY) basis. Revenues, meanwhile, are projected to rise 3.7% to $6.41 billion.

Deere Earnings Expectations Lowered After UAW Strike

Deere (DE, $348.84), which is famous for its tractors and riding lawn mowers, will report fiscal fourth-quarter earnings ahead of Wednesday's open.

"Similar to peers and consistent with retail trends, we believe DE results will reflect continued strong end-market demand, handicapped by production constraints as supply chain and labor dynamics worsened late in the quarter," says Oppenheimer analyst Kristen Owen.

One part of the labor dynamics she refers to is month-long strike by thousands of Deere workers that began in mid-October after the company failed to reach an agreement with the United Auto Workers (UAW). The dispute was resolved on Nov. 17, when UAW members approved a new six-year contract that includes a 10% pay increase and $8,500 bonus, according to press reports.

However, the impact of the strike prompted Owen to lower her estimates for fiscal fourth-quarter earnings per share to $3.89 from $4.02 and revenue to $11.1 billion from $11.6 billion.

Nevertheless, "we remain constructive on DE shares as we see secular tailwinds persisting and unaccounted-for upside in construction" due in part to the recent passage of the infrastructure spending bill in D.C. Owen has an Outperform rating on Deere, which is the equivalent of a Buy.

The pros, on average, are looking for $10.49 billion in revenues (+21.1% YoY) and earnings of $3.95 per share, which is 65.3% higher than the year-ago figure.