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Wedbush maintains Underperform rating for Best Buy, calls Amazon smart TV deal a Trojan horse

The electronics retailer recently teamed up with Amazon to sell smart TVs
Trojan horse
Shares fell following slow online growth in the first quarter

Best Buy Co Inc (NYSE:BBY) announced better-than-expected first quarter earnings, but the retailer failed to impress some analysts.

The electronic giant reported earnings of US$0.72 per share on revenue of US$9.10bn compared with US$0.60 EPS on revenue of US$8.5bn in the previous year’s first quarter.

Adjusted earnings were US$0.82, beating analyst estimates of US$0.74 per share. Revenue exceeded estimates of US$8.74bn.

However, online sales growth slowed down to 12% compared with 22.5% in the previous year’s first quarter.

READ: Best Buy’s shares fall as online sales growth declines in its first quarter

Wedbush analyst Michael Pachter reiterated an Underperform rating and set a price target of US$48.

“We think the reiteration of its full year guidance underscores that Best Buy is up against a very difficult comparison this year, particularly in Q4,” said Pachter in a note.

The analyst questioned the retailer’s ability to meet its full year earnings per share target of US$5.50 to US$5.75.

Best Buy’s recent partnership with Amazon to sell smart TVs was also a cause for concern.

READ: Amazon, Best Buy team up to sell smart TVs

“Best Buy’s partnership with Amazon is a Trojan Horse from Amazon to steal Best Buy customers. While it may be beneficial to both parties in the near-term, we view it as an existential threat to Best Buy over the long-term,” said Pachter.

Pachter believes that Amazon is targeting the remaining few Best Buy customers that shop in-store only, luring them away from the retailer over to Amazon in order to receive the full benefits of owning an Amazon Fire TV.

The analyst did note that Best Buy has been able to capitalize on what Pachter called its “last man standing” status, capturing market shares from shuttered giants like Circuit City, Radio Shack and HH Gregg.

Shares of the Minnesota-based retailer continued to fall after its earnings report, down nearly 2% to US$69.52 in Friday morning trading.

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