A longtime skeptic on Best Buy now says buy the stock — here's what changed their mind

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A longtime bearish analyst on Best Buy has jumped over to our side the debate after its head-turning earnings report last week. Citigroup on Monday double upgraded Best Buy to buy from sell and hiked its price target on the electronics retailer's stock to $100 a share from $67. The analysts cited the personal computer refresh cycle, the upcoming launch of artificial intelligence-enhanced laptops and management's ability to manage margins as positive catalysts that create "multi-year opportunity ahead" for Best Buy. Analysts had rated Club holding Best Buy a sell since they started covering the company for Citi more than three years ago, in March 2021. Citi's newfound optimism on Best Buy follows the company's better-than-feared fiscal 2025 first quarterearnings report last week , which sent shares surging 13% on Thursday and another 4% Friday. The report proved Best Buy has "best-in-class" gross margin execution, according to Citi analysts. "Simply put, that was a thesis changer" [versus] our prior negative thesis," they wrote. Shares of Best Buy added another 2.5% Monday, reaching a fresh 52-week high during in the session. When we initiated our stake in Best Buy in late March as a bet on the AI-fueled PC refresh cycle, we acknowledged we could be a little early. But with the stock sporting a healthy dividend payout, we argued it was worth starting the position and waiting for the market to come around to our investment rationale. We added to our position four times in April as the stock sold off. "If we did not get ahead of the 40% [exclusivity comment], we would have missed all of this" upside in recent days, Jim Cramer said Monday, referring to a significant disclosure from Best Buy CEO Corie Barry on the company's earnings call last week. Barry said Best Buy expects to have the largest assortment of AI PCs on sale later this month from brands such as Dell, Microsoft and HP, with "more than 40% of the assortment retail exclusive to Best Buy." Preorders for the devices are running a bit ahead of early expectations, Barry added. Everything we heard from Best Buy indicated our investment thesis is playing out, which is why we reiterated our buy-equivalent 1 rating and $95 per share price target. Even with its recent rebound, Jim argued Monday the stock is still cheap. "You're not buying anything that's expensive," Jim said. "This is one that has suffered during the Covid sell-off, so for it to come back, it's really not up anything when you think about pre-Covid." Best Buy's all-time closing high of $138 a share came on Nov. 22, 2021, the same day the Nasdaq peaked during the pandemic-era bull market. Based on Monday's prices, Best Buy would need to gain nearly 59% to take out its old highs. Shares currently trade a little more than 14 times fiscal 2025 consensus earnings of $6.09, according to FactSet. BBY 1Y mountain BBY stock 1-year performance. Considering the innovation pipeline ahead, Citi analysts are optimistic Best Buy shares can go even higher. Although Best Buy's same-store declined 6.1% in the just-reported quarter, analysts believe the key retail metric for the company is "approaching a positive inflection point" as customers who bought laptops during the early days of the Covid pandemic begin to shop for replacements. "This portion of the business is leading the recovery and should build momentum as new AI innovation trickles into the assortment likely providing a higher [average-selling price] benefit," Citi said. Citi acknowledged that Best Buy has suffered from a shift in consumer spending toward services away from pricier discretionary items such as electronics. However, analysts see that trend reversing in the coming quarters from lower interest rates, with consumer wallet share shifting to durable goods. This creates "a favorable setup for growth to return, especially in appliances and consumer electronics," they wrote. Those two categories represent about 45% of company revenue, according to Citi. We also have argued that Best Buy is also a secondary play on the housing market because people tend to shop for TVs and upgrade appliances when they buy a new home. Lower interest rates and, by extension mortgage rates, would spur activity in that area. (Jim Cramer's Charitable Trust is long BBY, MSFT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED. People walk into a Best Buy store in a Brooklyn mall on August 29, 2023 in New York City. Spencer Platt | Getty Images