Core categories stable + emerging businesses booming UBS Group AG sings praises for Best Buy Co., Inc. (BBY.US) ahead of the performance.

U.S. electronics retailer Best Buy Co., Inc. (BBY.US) will announce its first-quarter earnings for the fiscal year 2026 this Thursday. UBS Group AG released a report stating that Best Buy Co., Inc. has shown good operational resilience in the recent volatile environment, and Q1 financial report is expected to alleviate market concerns. The bank has given Best Buy Co., Inc. a "buy" rating with a target price of $85. UBS Group AG stated that unexpected management changes and rising storage costs have been the two main factors suppressing Best Buy Co., Inc.'s stock price. If first-quarter performance meets expectations, it will enhance market confidence in its business stability. UBS Group AG believes that this financial report will confirm that the company's strategy to improve profitability structure is gradually yielding results, with third-party platforms and advertising businesses continuing to drive growth momentum. In addition, UBS Group AG expects first-quarter sales to benefit from the growth of emerging categories such as AI glasses and collectibles. This is crucial as the growth of emerging businesses will prove Best Buy Co., Inc.'s ability to grasp innovative trends and maintain industry competitiveness. While first-quarter performance may not completely alleviate market concerns about Best Buy Co., Inc.'s long-term strategy, considering its current price-to-earnings ratio of about 9 times based on the next 12 months' performance, and a dividend yield of 6%, UBS Group AG believes the risk-return ratio is attractive. Overall outlook for the first quarter The market expects Best Buy Co., Inc.'s Q1 same-store sales to remain flat to increase by 1%, with a consensus forecast of 0.8% growth. Therefore, market expectations are not too demanding. If Best Buy Co., Inc. achieves positive same-store sales growth in the first quarter, makes good progress in its operations, and reiterates its full-year performance guidance, it is likely to significantly boost market confidence. However, investors also worry that after the first-quarter results are released, the stock may face downward pressure. Reasons for this include the high comparison base brought by the one-year anniversary of the release of the Nintendo Switch; warnings from leading manufacturers such as NVIDIA Corporation and Samsung that storage chip shortages may occur in the second half of the year; and potential risks of soft consumer demand. In addition, management changes have become a focus of attention. CEO Corie Barry will step down at the end of 2026, to be replaced by Jason Bonfig. Bonfig is a core architect of third-party platforms and advertising businesses, and his appointment is expected to continue and strengthen these two growth engine businesses. UBS Group AG believes that Best Buy Co., Inc. faces long-term pressure from e-commerce competition, and this management adjustment will directly impact the company's valuation trend over the next 12 months. Intense release of new products to support revenue growth Best Buy Co., Inc. has several flagship new products in its core categories that are expected to support overall revenue growth: In the gaming sector, the Nintendo Switch 2, released in June last year, continues to contribute to growth, despite a slowing growth rate sequentially; in the mobile phone sector, the Apple Inc. iPhone 17 series continues to sell well, and Samsung's Galaxy S26 brings freshness to consumers; in the computer sector, Best Buy Co., Inc. benefits from the Apple Inc. MacBook Air with the M5 chip. Of note, Best Buy Co., Inc.'s emerging categories are rising strongly: In the AI glasses sector, sales of Meta Ray-Ban smart glasses continue to grow; Apple Inc. AirPods Pro 3 and Apple Watch Series 11 are selling well, helping Best Buy Co., Inc. capitalize on the trend of health technology; collectibles such as Pokmon cards, LEGO Pokmon series, Walt Disney Company collectible cards, and 3D printer categories like Bambu Lab P1s inject new momentum into Best Buy Co., Inc.'s growth. Two main growth engines: platforms and advertising businesses In the fourth quarter of the fiscal year 2025, the total transaction value (GMV) of third-party platforms reached $300 million, with over 1,100 seller participants. UBS Group AG expects this business to drive the company's overall gross profit margin up by 15-20 basis points in the fiscal year 2027. In terms of advertising business, in the fourth quarter of 2026, Best Buy Ads' GMV exceeded $900 million, with 750 advertising partners, up from about 375 in the fiscal year 2025. UBS Group AG believes that the expansion of the market platform business will continue to support the growth of the advertising business. Best Buy Co., Inc. expects its advertising business to accelerate to 10% in fiscal year 2027, which will bring its GMV to $990 million.