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CNBC's Pisani On Best Buy Downgrade

Wednesday, 13 Dec 2006 | 9:39 AM ET

Best Buyhad disappointing results yesterday; the company pointed to competitive pressures. Prudential believes that retail pricing for flat panel TVs has begun to erode. They downgraded both Best Buy and Circuit City today. The title of the report: "If the company can't earning high profits on flat panel TVs now, when will it be able to?"

They go on to say: "We have always assumed that, one day, discount retailers would commoditize the excess profits out of the flat-panel TV business, but we did not expect to see it occur during this holiday season."

Outside of TVs, Prudential notes that the rest of the business seems surprisingly tame: computer sales are lackluster, appliance and music comps are down year over year.

One interesting point although they do not disclose profits from warranties, Prudential believes that Best Buy receives a "significant portion" of its operating profits from sale of warranties.

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