Analyst: Best Buy could lose share to discounters
CHICAGO --An analyst said electronics retailer Best Buy Co. Inc. will likely lose market share if heavyweights Target Corp. and Wal-Mart Stores Inc. began to offer installation services to customers.
Citi Investment Research analyst Kate McShane, initiating coverage of the nation's largest consumer electronics retailer, said in a research note late Monday that she was giving the company a "Hold/High Risk rating" and a $47 price target.
"Despite Best Buy's growth opportunities we think the sluggish macro environment and increased competition at retail will continue to weigh on results in both the short and long term," McShane wrote to investors.
McShane said Best Buy could face a disappointing fourth quarter -- a vital time for retailers -- as consumers push more of their spending into earlier periods of the year.
Meanwhile, the Richfield, Minn.-based company could also face pressure from other retailers such as Target Corp. and Wal-Mart Stores Inc., which has made strong inroads into the consumer electronics sector in recent years.
"We are increasingly concerned by the competitive environment with discounters' foray into providing services for the consumer," McShane wrote. "Customer service and installation is one of Best Buy's competitive advantages in a highly competitive and commoditized industry. While Wal-Mart and Target have no where near the service level of Best Buy (which includes home installation from Magnolia and Geek Squad) the fact that these companies are starting to offer installation in a difficult environment could result in a slow down in share gains or possibly even share loss for Best Buy."
McShane said Best Buy's outlook stands to improve if economic conditions reverse and a major competitor collapses, but its fortunes could head south if there's a lack of new product introduction and discounters begin to amass a larger market share.
Best Buy shares rose $1.62, or 3.8 percent, to $44.40 in trading Monday. The stock is down 19 percent in the year to date. 