Following huge beat, buy Best Buy?

Published Tue, Aug 25 20153:55 PM EDTUpdated Tue, Aug 25 20154:23 PM EDT

Investors were pleasantly surprised on Tuesday as Best Buy , the consumer electronics retailer, reported better than expected sales, profit margins and raised guidance ahead of estimates. The company's stock ended the day up nearly 13 percent, its biggest daily increase since August 2013. For the year, however, ticker BBY is still down 15 percent. As of Tuesday afternoon, 46 percent of Wall Street analysts who cover Best Buy rate it either sell or hold, according to FactSet. This compares to just 16 percent for Amazon. Here's why the company is doing better and how the Street's negativity towards Best Buy could be a positive... Wall Street was downbeat going into the earnings due to secular concerns about online competitors like Amazon . However, Best Buy is embracing the physical store and online presence model as an advantage. "The first competitive advantage is our ability to serve our customers online, in store and in their home," said Hubert Joly, Best Buy's CEO on their conference call. "We also have stores within 15 minutes of 70 percent of the U.S. population." Joly emphasized that not only do their retail stores service the local customer, they can operate as distribution centers for their online customers resulting in faster delivery and better inventory availability. Management said 89 percent of the U.S. population lives in states where Amazon collects state sales tax today compared to three years ago when it was only 40 to 50 percent. This is helping Best Buy be much more competitive on price. Read More Twitter execs' brutal honesty not working for stock "We believe these better-than-expected second-quarter results are affirmation that our strategy of offering advice, service and convenience at competitive prices is paying off," said Joly in the earnings release. Retail analysts were excited with Best Buy's market-share gains, better product categories performance and the potential of new product cycles in 4K televisions and wearables. The brightest spot in the quarter was appliances with 20.7 percent year-over-year growth benefiting from a strong housing market. "Best Buy's solid numbers suggest again that U.S. consumer is in much better shape than most admit and that renewed interest in TV product cycle & appliances is allowing them to take their fair share of a larger overall pie," said Rahul Sharma of Neev Capital, a global investment research firm. Sharma is also complimentary of the chief financial officer Sharon McCollam's financial discipline and proficiency in dealing with investors. Read More Dan Loeb's simple strategy destroys the market "It helps to have the former Williams-Sonoma CFO here. She is excellent at low-balling guidance and making ordinary (and in this case decent) quarters look much better than they are when delivered," stated Sharma. If the company continues to beat estimates from a combination of market-share gains, new product cycles and cost controls, Best Buy shares will likely go higher and lead to analyst upgrades. The current Wall Street 12-month average price target for Best Buy is $40.81, representing a 20 percent return from the current stock price.

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Investors were pleasantly surprised on Tuesday as Best Buy, the consumer electronics retailer, reported better than expected sales, profit margins and raised guidance ahead of estimates.

The company's stock ended the day up nearly 13 percent, its biggest daily increase since August 2013. For the year, however, ticker BBY is still down 15 percent.

As of Tuesday afternoon, 46 percent of Wall Street analysts who cover Best Buy rate it either sell or hold, according to FactSet. This compares to just 16 percent for Amazon.

Here's why the company is doing better and how the Street's negativity towards Best Buy could be a positive...