Best Buy (BBY) might catch some near-term trading momentum from tax refunds and short covering, but the path to sustained gains looks increasingly narrow. That's the view from JP Morgan analyst Christopher Horvers, who thinks the retailer is entering a period where "sellers higher" will dominate, thanks to tougher year-over-year comparisons and fading category tailwinds.

A Sharp Valuation Haircut

Horvers downgraded Best Buy to Neutral from Overweight and chopped his December 2026 price target to $76 from $99. The new target reflects roughly 12x fiscal 2026 earnings and about 5.5x EV/EBITDA, which he says is fair for a retailer staring down slowing comps and limited visibility on when things turn around.

The earnings outlook took a hit too. Horvers cut his adjusted EPS estimate to $6.23 from $6.45 for fiscal 2025 and to $6.36 from $7.09 for fiscal 2026, citing a difficult fourth-quarter setup and weakening category momentum. For Q4 fiscal 2025 specifically, he's modeling -3% comparable sales, 21.0% gross margin, 4.9% operating margin, and EPS of $2.40. That's below Street expectations, as consumer electronics demand stayed softer than hoped late in the year.

Fiscal 2026 Guidance Could Disappoint

The real worry is what management says next. Horvers expects Best Buy to guide fiscal 2026 comps between -1% and +1%, with EPS of $6.10-$6.60. That would come in below current consensus and likely trigger another round of estimate cuts across the Street.

The problem is simple math: Best Buy is lapping the Nintendo Switch 2 launch and the Windows 10 replacement cycle, which together drove a meaningful chunk of fiscal 2025's comp growth. Horvers estimates that more than 40% of last year's sales mix that powered momentum is about to decelerate sharply.

Computing is the biggest concern. It accounts for more than 35% of total sales, and rising memory costs are expected to push PC prices up 20-30%, which could hammer unit demand throughout 2026. Horvers sees limited room for margin expansion, with gains from advertising, marketplace growth, and supply-chain improvements mostly offset by tariffs and constrained SG&A leverage. Operating margins are likely to stay roughly flat around 4.2%.

Competitive Pressure and Category Weakness

Horvers also points to a shrinking price-performance gap between value and premium electronics brands, which could hurt ticket size and product mix even if unit volumes hold steady. TVs and appliances remain challenged as well, with sluggish housing turnover limiting any meaningful recovery in those categories.

BBY Price Action: Best Buy shares were up 0.32% at $65.31 at the time of publication on Monday.