Why Did Best Buy Open Higher?
Best Buy reported earnings above expectations, but most of the gain was due to a better tax situation. 2012 guidance was at the low end of expectations.
So why did it open up nearly 4 percent? It's not that business is particularly great. Everyone knows they are struggling against the online giants like Amazon.com or discounters like Costco . Mobile phones are a bright spot, but profit margins on TVs have been dropping like a rock, and the iPad really is cannibalizing sales of PCs.
So what do you do? You cut costs, try to boost your margins...and buy back shares.
And that is what is appealing to traders this morning. BBY has $1.3 billion remaining under a share repurchase authorization. The guidance for 2012 ($3.30-$3.55) may look at the low end of the $3.56 in analyst consensus, but that does not include the effect of the buyback. How much would that be? Estimates vary, but $0.15 is not unreasonable, which puts earnings at $3.45-$3.70, not bad for a slow-growth business with really tough competitors.
Still, it's unlikely to mollify the critics. After opening up nearly 4 percent, the stock has been drifting south all morning.
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