That’s when the market took off – [S&P] futures went from 814 to 822. When they think the consumer is completely dead, and Best Buy blows out earnings, even if a lot of it is lowered prices on things, the consumer is obviously not dead.
– Dave Rovelli, managing director in trading at Canaccord Adams
Best Buy (BBY) this morning reported a better than expected 4th quarter. Adjusted net income was down 7.5% to $682 million and EPS was down 10 cents to $1.61. But that still blew away analyst estimates for $1.38. They also forecast earnings of $2.50-$2.90 for fiscal 2010 – above analysts estimates of $2.47. As a result, the stock is off to the races – up 12% on the biggest volume in about 2 years.
But it’s getting ridiculous. The stock has now more than doubled from its Nov. 21 closing low ($17.63) to trade over $37 a share. Even if they hit the mid-range of their forward earnings target ($2.70), the stock is now trading for 14 times forward earnings – no bargain in a bear market.
Investors appear to have lost sight of the fact that US same store sales were still off 4.8%. The fundamentals for selling discretionary items are still terrible.
Anyways, this report has lit a fire under consumer discretionary companies. Here are some examples:
Target (TGT) +5%
Home Depot (HD) +3%
Lowe’s (LOW) +4%
Nordstrom’s (JWN) +7%
Macy’s (M) +9%
Brinker International (EAT – owner of Chili’s and Macaroni Grill) +8%
Starbucks (SBUX) +7%
This is way overdone. I’ve been trying to get short Amazon, Best Buy and Starbucks but Scottrade has no available shares to short.
Disclosure: Top Gun has no position in any of the securities mentioned in this article.