August 10, 2009 / 12:19 PM / 9 years ago

UPDATE 1-Goldman Sachs cuts Best Buy to neutral; shares down

Aug 10 (Reuters) - Goldman Sachs downgraded Best Buy Co Inc (BBY.N) to “neutral” from “buy,” as it sees the electronics chain facing competitive pressures and challenges related to its product mix and overseas investments.

Although Best Buy will continue to benefit from the demise of rival Circuit City, Goldman expects the electronics chain to confront significant competition from the mass market and the online channels in 2010 and beyond.

Additionally, Best Buy will continue to face pressure “from eroding traffic drivers as music fades, DVD grows slowly, and this gaming cycle matures,” Goldman Sachs analyst Matthew Fassler said in a note to clients.

Goldman said the retailer’s strategy of diverting labor to big-ticket businesses was fraying due to the deep declines in average selling prices of televisions and limited room for more cost cuts.

Goldman, which removed Best Buy from Americas buy list, raised its target on the stock by $2 to $43 and said the stock looks inexpensive to peers on valuation.

Best Buy’s stock was down $1.05 at $38.70 in trading before the opening bell. (Reporting by Dhanya Skariachan in Bangalore; Editing by Ratul Ray Chaudhuri)

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