Banc of America Securities Analyst Highlights HDTV Sales at Ultimate Electronics in Consumer Electronics Duopoly Report
Summary
A Banc of America Securities analyst identified Best Buy, Circuit City, and Ultimate Electronics as top consumer electronics retail picks, noting that Ultimate Electronics sold the first HDTV in the U.S. and that HDTV represented nine percent of its sales with volume expected to triple the following year.
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Friday October 1, 1:57 pm
Hardline Retail Industry Dukes It Out for Shifting Balance of Power
Victors Enjoy Reduced Competition, Increasing Returns
SAN FRANCISCO, Oct. 1 /PRNewswire/ -- The following is being issued by Banc of America Securities, a member of the National Association of Securities Dealers, CRD number 26091:
A street fight that's left only a few participants standing is lowering competition and driving increased returns and stock prices in the consumer electronics and building material retailers' sectors of the hardline retail industry.(Photo: http://www.newscom.com/cgi-bin/prnh/19990920/BASLOGO )
``As the retail industry rationalizes, there's been a fluid shift in the balance of power,'' says Douglas A. Gordon, hardline retail industry analyst for Banc of America Securities. ``The five key elements in determining the balance of power include the rapid entry and exit of competitors, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the existing rivalry between competitors.''
Gordon's comments came at the 29th Annual Banc of America Securities' Investment Conference, which runs from September 27 through October 1 at the Ritz-Carlton Hotel in San Francisco. This former Montgomery Securities' conference bears a new name but boasts a program that lives up to its impressive reputation. The five-day conference features 250 presentations from companies that are driving the Business Services, Consumer & Retail, Energy, Entertainment, Media & Telecom, Financial Services, Health Care, Industrial Growth, Real Estate & Lodging and Technology industries.
The bargaining power of buyers and suppliers is also shaping the way retailers do business, Gordon says. ``Vendors have fewer retail options, and retailers are using their clout to negotiate lower prices and advertising support,'' he notes. ``In addition, as many retailers create their own proprietary brands, some suppliers are choosing to enter into exclusive partnerships with retailers.''
The rivalry of competitors in the hardline retail industry has given rise to what Gordon calls a duopoly, two companies cornering a market and enjoying reduced competition. Best Buys and Circuit City form a duopoly in the consumer electronics category, while Home Depot and Lowe's have forged a similar duopoly in the building material retailers' category.
``Competitors have come and gone in both the consumer electronics and building material retailers categories,'' says Gordon. ``As the dust clears, the true leaders are emerging.''
In the consumer electronics category, Gordon recommends three particularly strong performers. Best Buy ((NYSE: BBY - news), $60, Buy), one of the strongest models in the retail category, enjoys a 23 percent return on invested capital and a miniscule 3 percent owned inventory. This premier retailer's strong financial position provides earnings visibility as the debt-free company unlocks the power of its $900 million cash balance.
Gordon says that the level and quality of Circuit City's ((NYSE: CC - news), $41 1/2, Buy) comps are rising as it strengthens internals including gross margin, cost leverage and inventory management. The company has a well-developed infrastructure with Internet leverage, and will incur minimal costs to remodel its store base.
Ultimate Electronics ((Nasdaq: ULTE - news), $15 9/16, Strong Buy)[1] gets high marks from Gordon as an industry leader offering new technology products, having sold and delivered the first HDTV in the U.S. Currently, that product represents nine percent of sales, with volume expected to triple next year. The company has significant new store and new market opportunities, and earnings are expected to increase 155 percent this year.
Home Depot ((NYSE: HD - news), $67 16/16, Strong Buy) is Gordon's top pick in the building material retail sector. The company dominates the category with only 15 percent of market share, due to industry-wide consolidation and fragmentation. Home Depot is poised for continued solid growth with the launch of exciting new strategic concepts, among them Expo, Villager's Hardware, and HomeDepot.com.
Banc of America Securities LLC (BAS), a subsidiary of Bank of America Corporation, is a full-service investment bank and brokerage firm. With principal offices in San Francisco, New York City and Charlotte, BAS employs more than 4,000 associates in offices around the country, and with affiliates, offers capabilities worldwide.
Bank of America Corporation, with $614 billion in total assets, is the holding company for one of the largest banks in the U.S., with operations in 21 states and the District of Columbia.(1) Banc of America Securities LLC currently maintains a market in this security.
SOURCE: Banc of America Securities LLC