Why Goldman Sachs Still Has a Sell Rating

Goldman Sachs remains cautious on shares of electronics retailer Best Buy (BBY) prior to the main school and holiday shopping periods.

“We’ve had a Sell [rating] on Best Buy for a while, I think since December 2020,” Kate McShane, retail analyst at Goldman Sachs, told Yahoo Finance Live (video above). “And [something] What we emphasized at the time and continue to emphasize is that we think consumer electronics have been more of a benefit to stay-at-home people than not.”

McShane suggested that Best Buy faces tough sales comparisons as people go back to work in the office and buy less electronics. The analyst also expressed concern about the outlook for Best Buy’s profit margins.

A shopper leaves a Best Buy store during a Black Friday sale in Brooklyn, New York, US Nov. 26, 2021. REUTERS/Brendan McDermid

A shopper leaves a Best Buy store during a Black Friday sale in Brooklyn, New York, US Nov. 26, 2021. REUTERS/Brendan McDermid

“This is not one of the companies that saw huge margins soar during the pandemic,” explains McShane. “They kind of stayed within their reach. And as we get into a more promotional environment this year… in addition to rolling out their Total Tech Support business, you’re going to see the weight on the gross margin. So there’s more risk around the numbers in 2022 then maybe for other companies we cover.”

Best Buy shares fell 4.6% in trading on Tuesday as of market close. The stock has underperformed the S&P 500 since late November 2021. according to data from Yahoo Finance Plus

While much of McShane’s appeal to Best Buy reflects a hangover from the pandemic boom in work-from-home electronics, macroeconomic concerns are also brewing.

high fuel costs, hungry consumersand mounting concerns about the recession are all increasing challenges for Best Buy and other retailers.

Consumer confidence also remained low, even if spending has not yet fallen significantly. The University of Michigan Consumer confidence reading for June hit a record low, and a new survey from Gallup Consumer confidence is at its worst since the Great Recession. Another consumer confidence measure released Tuesday by the Conference Board hit a 16-month low, falling short of economists’ estimates.

“The bleak consumer outlook has been driven by mounting concerns about inflation, particularly rising gas and food prices,” said Lynn Franco, senior director of economic indicators at the Conference Board, in a statement. pronunciation† “Buy intentions for cars, homes and large appliances have remained relatively stable – but intentions have cooled since the beginning of the year and this trend is likely to continue as the Fed raises interest rates aggressively to tame inflation.”

Brian Sozzi is a great editor and anchor at Yahoo Finance† Follow Sozzi on Twitter @BrianSozzi and further LinkedIn

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