Best Buy Co., Inc. (BBY): Still A Good Buy?

Best Buy Co., Inc. (BBY) has been on a roll as 2013 has been a lucky year for shareholders. The electronics stores operator is up more than 250% on the year, making BBY one of the S&P 500's best buys of the year, so far.

Like one of those infomercials, but wait, there is more to come according to UBS. Analyst Michael Lasser upped his outlook on the stock to "Buy" from "Neutral." Which cliché do you prefer – better late than never or a little late to the party?

Anyway, Lasser says the stock is going to $49.  The analyst makes his case: "The move in BBY's share price this year has been all about multiple re-rating with the forward PE moving from 5x to 16x in 12 months. The next phase of appreciation for the stock will be driven by estimates marching higher with the current C'14 consensus likely to move from its current level of ~$2.75 to north of $3+ and the C'15 will probably go from $3.09 to $3.50+. Thus, the multiple can contract 10% over the next 12 months and BBY's shares can still return 20%. We think this skews the risk / reward to the upside and recommend buying."

[Related -Best Buy (BBY) Is Fighting Back -- But Is It A Buy?]

UBS now sees fiscal-year (FY) 2014 EPS estimates of $2.45 and FY 2015 EPS of $3.10 versus previous estimates of $2.30 and $2.60, respectively.

We'll find out soon enough if Lasser's hypothesis proves correct as earnings are due next Tuesday, November 19, 2013 (We'll have an EPS preview later – stay tuned.)

Since Lasser focuses on price-to-earnings (P/E) to justify his $49 price target, let's take a look at BBY's recent P/E history and UBS's new EPS estimates to see if we can make the case.

[Related -Best Buy Co., Inc. (BBY): CEO Dumping Shares After 224% Gain In 2013]

Best Buy's P/E topped out at 19.78, bottomed out at 5.64, and averaged 12.10 during the last half-decade. With FY 2015 earnings of $3.10, BBY has a potential price range of $17.48 to $61.32 with the five-year low and high P/Es. The electronics sel! ler's shares would trade at $37.51 using the average multiple. In order to hit UBS' $49, BBY needs to trade at 15.08 times Lasser's FY 2015 $3.10 estimate.

Overall: Considering 2015 EPS are expected to increase by 26.53% compared to 2014, according to Lasser, a P/E of 15.08 is more than reasonable, in our view. Keep in mind, however, that UBS' outlook is more aggressive than the current consensus 2014-2015 earnings growth of 14.17%. A 15.08 P/E is still in line with the more conservative view, which means $49 could prove to be conservative, too.

iStock does have one concern, though. Sales are expected to be stagnate year-over-year, which means BBY's earnings growth will have to come via expanding margins. We wonder if management's new policy of matching internet pricing will make it more likely that margins shrink.