Best Buy shares have nearly doubled since CEO Hubert Joly took the reins three years ago, ushering in a new era of cost savings and revamped stores.
Despite effectively saving a business that many anticipated would go the way of Circuit City, some things remain out of Joly's control.
Best Buy shares dropped 6 percent to $32.70 on Friday after Bank of America downgraded the electronics retailer's shares to "underperform" from "buy." Amid weakness in computing, price pressure in tablets and "stagnant" mobile trends, BofA analyst Denise Chai set a price target of $32.
"Over the past three years under CEO Hubert Joly and CFO Sharon McCollam, Best Buy has significantly strengthened its competitive position through investments in the store experience, omnichannel and tighter relationships with vendors," Chai wrote in a note to investors. "Best Buy is also benefiting from strong product cycles in 4K TVs and appliances."
"We remain positive on Best Buy's internal initiatives to increase share and productivity ... but believe they will be overridden by the aforementioned pressures."
Chai noted that computing and mobile represent nearly half of Best Buy's sales, compared with just 23 percent for TVs and appliances.
BofA's downgrade comes just days after the National Retail Federation issued a disappointing forecast for back-to-school spending. Parents of K-12 students are expected to spend 7 percent less on the category, while spending on electronics for college students is forecast to drop 15 percent.
Prosper Insights' Stacie Severs Nelson, whose firm conducts the annual survey on NRF's behalf, said that because many people upgraded their technology as the recession wound down, they have no need to buy another computer this year. What's more, whereas students used to need a watch, camera, phone and calculator, now they can purchase one single device that has all these capabilities.
The declining cost of new technology is also expected to weigh on the category, Severs Nelson said.
"That's going to impact spending in the electronics category as well," she said.
Bank of America's Chai listed "intensified competition" from Amazon as risk to Best Buy's margins. The online retailer on Wednesday held an anniversary sale that, along with cutting prices on electronics, bested its biggest Black Friday ever.