Best Buy downgraded while it still rules consumer electronics

Best Buy, Inc. (NYSE: BBY) was downgraded by Cowen & Co. Tuesday from Outperform to Neutral even as the largest consumer electronics chain in the U.S. continues to beam proudly with all the success it's been achieving recently. Best Buy CEO Brad Anderson even said, "We have never had to pull anything back in a significant way and don't see that on the horizon. Right now we see indicators that it's a tougher climate, but we don't see indicators to say that its likely to be a really difficult one. So, what is all the hubbub about?"

Cowen & Co. indicated that product cycles in the electronics sector may be slowing, which could crimp sales for the consumer electronics retailer. Cowen cited "strong products to drive sales" in the note sent to clients, specifically noting the larger product cycles of TVs and computers are starting to wane as consumers rapidly replace older televisions with newer flat-panel units and PC sales see double-digit growth outside the U.S. (and decent growth inside). Best Buy is also aggressively entering the Chinese and Indian markets. Let's pause while collective head-scratching commences.

A glance at Best Buy's main rival Circuit City Stores, Inc. (NYSE: CC), which had a disastrous 2007 (and was rumored to be considering throwing CEO Phil Schoonover to the curb), and it's hard to see Best Buy doing anything but good in 2008. If product cycles are indeed slowing for larger-margin products, Cowen did say a lack of "compelling" products may hurt it. I'll cede that -- but it's the only thing standing in Best Buy's way this year.