Holiday Central

It's game on for a retooled Best Buy this holiday season

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A Thanksgiving Day line stretching around the block of a Best Buy on Manhattan's Upper West Side could be indicative of the electronics specialty store's upcoming holiday.

Despite a dramatic drop in the company's stock after its earnings report last week—when executives sounded a cautious note for the period, saying they would match prices to stay competitive—analysts said the retailer is poised to be a winner this season, and the news shouldn't wipe out the headway it's made in the past year—including its best same-store sales comparison in more than three years last quarter.

Instead, they said Best Buy stands to gain from a more integrated in-store and online experience, deeper inventories in key categories, more compelling prices and a positive economic backdrop for electronics retailers as a whole.

Black Friday shoppers carry away discounted items from a Best Buy store which opened its doors at 6 p.m. on Thanksgiving Day in Naples, Fla.
Getty Images

"I think they're going to be the biggest winner this holiday season," said JPMorgan analyst Chris Horvers.

(Read more: Best Buy warns promotions could hurt holiday quarter margins)

Following the company's earnings report, its stock dove nearly 11 percent. Before the announcement, the shares had risen more than 225 percent so far this year, but after regaining ground, the shares are now up about 238.48 percent, making it the second-best performing stock in the S&P 500 behind Netflix. Based on analysts' price targets, the stock could still have more room to run.

UBS analyst Michael Lasser said the dip was a market overreaction, and agreed that the retailer will have a "great holiday." He pointed out that even with Best Buy's price-match guarantee, the cost savings it has accrued from reworking its corporate infrastructure, creating a more efficient supply chain and shuttering unprofitable stores should offset any damage to its margins.

In a research note, he estimated that the retailer has more than 50 percent of its leases coming up for renewal in the next few years, and that its transformation plan could eventually produce $1 billion in cost savings.

Aside from these savings, Horvers pointed out that price matching is nothing new at Best Buy. The retailer has always matched Wal-Mart on price, and it's the second year it will match Amazon, he said. Stifel Nicolaus analyst David Schick sounded a similar note, saying it's important investors don't lose sight of the fact that Best Buy's progress "doesn't get erased with what happens every year—an aggressive Wal-Mart."

"What's a retailer going to do: Are they going to get promotional? Of course," he said.

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Although Schick wrote in a research note that Wal-Mart continues to do what it does best, noting its increased price promotion, he said, "Best Buy is doing a much better job of being Best Buy than they have in the past."

'More economically compelling'

Part of this improvement has come from Best Buy better integrating its website with its in-store initiatives. Lasser wrote he expects the company can continue to grow its online sales at a double-digit rate, especially as it rolls out capabilities to buy online and ship from store. The retailer has already shown an improvement in its online business, posting a 15.1 percent domestic same-store sales gain in the most recent quarter.

In addition to more fulfillment options, its online progress can be attributed to improved website navigation and search functionality, an integrated loyalty program and prices that are neck and neck with competitors such as Wal-Mart and Amazon.

"They've made it much more economically compelling to shop at Best Buy," Lasser said.

Street seeing the 'ugly' from Best Buy: Pro

'Ultimate holiday showroom'

Paired with a rewards program that offers shoppers gift certificates when they reach a certain spending threshold, a more strategic pricing strategy has helped the retailer fight back against showrooming, he said. This phenomenon was a problem that particularly plagued Best Buy, as consumers came to the store to test and learn about different products, and then bought them elsewhere for less money.

But the company's new management team has played up this reputation as a positive, with signage around the store declaring it "your ultimate holiday showroom."

What's more, an increase in competition among technology companies has encouraged these trials, and with its reputation for excellent customer service and price matching, Best Buy should ultimately benefit from it this season, Lasser said.

(Read more: Retailers want to make 'showrooming' a no-show)

"What you're seeing is a broadening of brands that customers are shopping. What you're seeing is a broadening of categories that customers are shopping. And that's really good for retail," Schick said.

It's particularly good for Best Buy, analysts said, because it has better category and brand breadth than many of its competitors. According to a note from Citi analyst Kate McShane, the retailer's Black Friday flier showed more product options than last year in three key categories: TVs, PCs and tablets/e-readers. It has also created shop-in-shops for 500 Windows stores, built up Samsung Experience shops and expanded Google kiosks in 750 of its large stores.

It's TV time

There are a number of external factors that should help electronics retailers as a whole post positive same-store sales this holiday, analysts said. Flat-screen TVs first saw strong sales between 2004 and 2006, and since they last about nine years, a large number of shoppers should soon be looking to replace them. This month's releases of Sony's PlayStation 4 and Microsoft's Xbox One—both of which reportedly sold 1 million units on their first day on shelves—should also give them a boost.

(Read more: Video game companies hope for a bountiful holiday)

The impact on each particular store's top line will depend on how much inventory they receive; while it's difficult to estimate, Wedbush Securities said in a report that Best Buy is likely to receive only about 10 percent of the allocation of the gaming consoles. This would mean the contribution of gaming console sales to domestic same-store numbers would likely be around 1.4 percent. Although the report noted this alone would likely not push the retailer into positive comps this holiday, analysts pointed out that Best Buy is up against weak comps following 12 consecutive quarters of same-store sales declines.

But challenges still remain this season, and not everyone believes Best Buy will overcome them.

Consumers are still on shaky ground, and given the uncertain political and economic backdrop, the National Retail Federation predicts retail sales will grow by a marginal 3.9 percent this season. Analytics firm ShopperTrak last week updated its holiday traffic forecast, and said that it expects traffic in electronics and appliance stores will decrease by 11.5 percent this year.

(Read more: Retailers reinvent the holiday pop-up shop)

On top of these external factors, Wedbush analyst Michael Pachter said the company is losing share to Wal-Mart and Amazon—which is offering a different deal every 10 minutes for the week of Black Friday—and that it won't capture that share back. He said the retailer would have to post something like a 5 percent same-store sales gain for four consecutive quarters just to hit analysts' estimates, which he predicts will not happen.

"People are going to realize this thing just isn't worth anywhere near its current price," he said.

—By CNBC's Krystina Gustafson. Follow her on Twitter @KrystinaGustafs.