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Wedbush Morgan downgraded shares of the Minneapolis-based consumer electronics retailer to underperform and cut its 12-month price target to $14.50 from $20, citing an "unclear outlook, deteriorating fundamentals and a new CEO who lacks retail experience."
Best Buy's stock closed Tuesday at $17.91, down more than 29% in the past year. The shares were off nearly 2% ahead of the open.
"We believe Best Buy has been unable to stem sustained comps declines and eroding margins, and remains at a significant disadvantage to its lower-priced and lower-cost peers," the firm said. "Our price target reflects a P/E multiple of ≈ 5x our revised FY:14 EPS estimate of $2.90, and is well below Best Buy's historical 12-15x multiple."
Wedbush said it thinks the company needs to make changes to substantially reduce its overhead at the store level.
"We believe that Best Buy's store level economics place it at a ≈ 10% price disadvantage to online retailers, and we believe that increasingly sophisticated consumers with mobile Internet access will value lower prices over service, ultimately making Best Buy's big boxes obsolete," the firm said.
After Tuesday's closing bell, the PC maker forecast full-year earnings of at least $1.70 a share, below Wall Street's consensus view for a profit of $1.85 a share. Dell said the outlook includes 2 to 3 cents of dilution from its acquisition of Quest Software.
For its fiscal third quarter ending in October, Dell sees a sequential revenue decline of 2-to-5% from its second-quarter total of $14.48 billion. That implies a revenue range of $13.75 billion to $14.19 billion for the third quarter, well short the current average analyst view of $14.52 billion.
Dell attributed the disappointing outlook, which accompanied mixed second-quarter results, to an "uncertain economic environment, competitive dynamics and soft Consumer business."
The stock closed Tuesday's regular session at $12.34, and was down nearly 6% in pre-market action.
Shares of the San Francisco-based specialty retailer surged late Tuesday after the company beat Wall Street's expectations for its fiscal second-quarter results and lifted its outlook for the full year.