Jefferies downgrades Best Buy to Hold on slowing demand, memory cost concerns

 Jefferies downgraded Best Buy, a U.S. consumer electronics retailer to Hold from Buy, saying the market already reflects an optimistic outlook for second-quarter comparable sales while earnings upside beyond that could prove more limited amid softer consumer demand and rising cost pressures.

The brokerage said July purchase-intent data showed a more than 3% year-over-year decline, marking one of the sharpest monthly drops in over two years and raising concerns ahead of a difficult third-quarter comparison. It also expects any increase to full-year guidance after second-quarter results to be modest, citing recent finance leadership changes and elevated advertising spending that could weigh on margins.

Best Buy was downgraded to Hold, with Jefferies maintaining its $85 price target, implying little upside from the previous close of $85.25. The brokerage projects fiscal 2027 earnings per share of $6.65, slightly above consensus of $6.55, while forecasting revenue of $42.2 billion versus the Street's $42.0 billion estimate.

Jefferies said demand could weaken further next year as higher DRAM memory costs lift laptop prices and dampen PC replacement purchases. It estimates a base-case scenario of roughly 50% DRAM inflation could increase laptop prices by about 8%, creating more than a 100-basis-point headwind to comparable sales, while a more severe shortage could push prices up 14%.

The brokerage acknowledged that the launch of Grand Theft Auto VI should provide a boost to gaming-related sales, estimating the title could contribute about $100 million in revenue this fiscal year and $170 million next year through game and accessory purchases. However, it believes those gains are likely to be offset by slowing PC demand, tougher comparisons and uncertainty surrounding the company's new leadership team.