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Tuesday, July 11, 2006

Tech Trader Daily » Is It Time To Short Best Buy (BBY)?

By William Trent, CFA of Stock Market Beat

Barron’s Tech Trader Daily blog points to an analyst who thinks Best Buy may be a short candidate due to the problems in the LCD panel supply chain. We say that’s putting the cart before the horse. LCD troubles are too much inventory, not insufficient sales.

Best Buy may be shortable on the thesis that retail sales will be slower than expected for the Holiday season (consumer slowdown, anyone?) If so, the shares of the panel makers such as Corning (GLW), AUO, etc. will be in real trouble.

Tech Trader Daily » Is It Time To Short Best Buy (BBY)?

Christopher Laudani, from the web site, thinks Best Buy (BBY) shares are a “sell.” In report this morning, he pointed to the trouble in the flat-panel display business, which tripped up 3M last week as reason to worry about the health of flat-panel TVs, which are an increasingly large part of the retailer’s sales. He also notes that Best Buy is “aggressively rolling out 200 Magnolia stores [a high-end audio-video chain] just as retail sales are slowing and higher interest rates are beginning to bite. ”

“Best Buy doesn’t need to report a disaster, just need to report the mid-point of guidance,” he writes. “Expectations are high. Analysts have clustered around $2.80 [a share] for [the February 2007 fiscal year] but have written that management is being conservative with its $2.65-$2.80 guidance.”

He thinks the stock will trade down to $45 “as investors realize that earnings momentum is waning…with 43% of revenue from flat panel televisions and other expensive gadgets, Best Buy is depend on high-end consumer electronics sales.

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