Best Buy’s Recent Pullback Provides an Outstanding Opportunity
Best Buy [NYSE:BBY - $35.59] is the largest consumer electronics retailer in the U.S., with about 20% of the $170 billion market. With its 2009 acquisitions, the firm increased its share of the $700 billion global consumer electronics market to roughly 6%. Best Buy also operates under the Future Shop and Five Star trade names in Canada and China. They operate over 2400 Best Buy Europe stores as well as Magnolia Home Theater, Pacific Sales Kitchen and Bath, and Geek Squad here in the U.S.
The bankruptcy of rival Circuit City has allowed Best buy to increase its already market-leading share of the US space. FY 2010 [ends Feb. 28, 2010] will show the highest revenues ever at an estimated $49 billion. December 2009 sales were up 13% year-over-year. 
Here are BBY’s impressive (split-adjusted) per share numbers from continuing operations as reported by Value Line:
|
FY |
Sales |
C/F |
EPS |
Div. |
B/V |
Avg. P/E |
52-wk. Range |
|
2001 |
32.73 |
1.20 |
0.83 |
Nil |
3.89 |
31.0x |
9.30 – 39.50 |
|
2002 |
40.94 |
1.79 |
1.18 |
Nil |
5.27 |
22.6x |
12.40 – 33.40 |
|
2003 |
43.37 |
1.93 |
1.27 |
Nil |
5.65 |
17.1x |
11.30 – 35.80 |
|
2004 |
50.41 |
2.43 |
1.63 |
0.27 |
7.03 |
18.8x |
15.80 – 41.80 |
|
2005 |
55.70 |
2.82 |
1.91 |
0.27 |
9.03 |
18.6x |
29.20 – 41.50 |
|
2006 |
63.59 |
3.29 |
2.27 |
0.31 |
10.84 |
19.2x |
31.90 – 53.20 |
|
2007 |
74.76 |
3.92 |
2.79 |
0.36 |
12.90 |
18.6x |
43.30 – 59.50 |
|
2008 |
97.48 |
4.84 |
3.12 |
0.46 |
10.92 |
15.1x |
41.80 – 53.90 |
|
2009 |
108.82 |
4.84 |
2.88 |
0.53 |
11.22 |
12.4x |
16.40 – 53.00 |
|
2010* |
115.30 |
5.15 |
3.10 |
0.56 |
14.38 |
12.1x |
23.97 - 45.55 |
* FY 2010 includes consensus estimates for Q4
Zacks now sees FY 2011 coming in at $3.33 /share making BBY’s multiple about 11.5x trailing and 10.7x forward earnings estimates. That’s the lowest valuation for BBY since the lows of 2000 and 2002. Buyers of Best Buy at those times saw the shares rebound from $9.30 to $35.80 (from December 2000 to March 2002) and from $11.30 to $59.50 (from November 2002 to April of 2006).
Just a quick glance at the chart above will show that both sales and earnings have surged over the past decade while the P/E has compressed. BBY’s valuation has rarely been this compelling despite the fact that fundamentals are expected to be at all-time highs in the fiscal year starting March 1st.
Dividends were initiated in calendar year 2003 and have been steadily increased to today’s $0.14 quarterly rate. At today’s close that provides a well-covered current yield of 1.57%.






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