...steffenhilgemann already did most of the work for you.
$150M in SG&A cuts yields $0.285 in incremental EPS after-tax.
Prior to the announcement, BBY closed at $17.00. It's 2014 EPS estimate was $2.17 or a P/E multiple of 7.8x.
Applying its 7.8x multiple to the added EPS from the cost savings yields a warranted share price increase of:
$0.285 EPS x 7.8 = $2.22.
Warranted stock price following the first tranche of SG&A reduction = $17.00 + $2.22 = $19.22
The only reason that the stock is not trading to this level is all the news about Schulze not being able to gain support for his make-believe privatization.
That should've never been a catalyst for the stock.
The real catalysts for the stock that people are ignoring are:
* a new management team that has already been rewarded with numerous upgrades from Wall Street research firms - not maligned by internet trolls
* 4Q earnings that will show a stabilization in domestic same-store sales
* execution of additional cost savings that will total $750M or $1.40 of incremental annual after tax EPS
* multi-channel distribution capabilities that yield $50B in annual sales
* the implementation of price-matching that will end the practice of "showrooming" - margins will compress but sales volumes will increase
* rationalization of unprofitable big box stores (64 are expected to be closed with ROICs less than 10%and opening a multitude of smaller more profitable mobile stores (439 today up from 8 in 2007)
* the national rollout of the Marketplace Fairness Act thereby eliminating the unfair tax advantage of internet-based retailers (BBY saw a 4-6% increase in sales in states that forced AMZN to collect state sales tax. Currently only 8 states force AMZN to collect sales tax.)
* Unilateral pricing policies (UPP) announced by Samsung, Sony, LG, Panasonic, and Sharp set fixed prices for which brick-and-mortar and online retailers are allowed to sell certain products. Undercutting of prices will not be tolerated.
THESE are the catalysts! Not some old man whose pride was hurt when he was let go as the Chairman.
Give me a break reit----- $19.22? What dream world you living in? BBY on the same path as circuit city! Will shut down in next 12 to 18 months!Went to bby last weekend, there was about 12 people shopping. More employees than customers!
The dream world where I bought in at $12.39. You?
Shut down in 12 to 18 months?
So I'll ignore:
* the recent upgrades by Wall Street research firms BB&T, Barclays and Stifel Nichols,
* the increase in 4Q domestic same-store sales,
* $965M in free cash flow,
* $49.6B in annual sales
* and the compelling turn-around strategy outlined by Joly and his team
...and take the advice of a message poster whose investment strategy is based on a shopping expedition last weekend?
You forgot to mention few
* Shipping prices for AMZN are going up. USPS increasing prices and thus competition follow the suite. Same does not apply to BBY.
* AMZN is planning to start physical retail which will add to their baseline too.
* Return policy decreased to 15 days, what will increase free cash flow.
Sentiment: Strong Buy
I love the way your false premise leads you to a false conclusion. Why would you ever imagine that $150M in SG&A cuts would all flow through completely to the bottom line. Those cuts are as likely to harm sales and earnings as they are to enhance them. As someone once said: Do the math...(but start with a true premise).
The old adage that statics can be twisted to prove any point applies here. Best Buy is not amazon and never will be, nor will they be able to compete with amazon. I am not going to go over each point you are trying to make but I have heard many of the same arguments years ago by Circuit City and Radio Shack longs. (especially the new management argument) and how did that work out? You gloss over the future reduction in margins by price matching. News flash, where their overhead BBY can't afford any margin reductions.
Okay, so the stock may be "cheap" if the 2014 earnings estimate is correct. What happens if the estimate is wrong. Same store sales stabilized domestically for one period after declining for four straight quarters. One data point does not constitute a trend. The price matching was the least Best Buy could have done. Explain to me how they can compete on price with Amazon? Please answer what the turn-around strategy for the company is? The only thing I've heard is to make the stores smaller. Okay, so the company will bleed money slower...
Sentiment: Strong Sell
"Explain to me how they can compete on price with Amazon?"... "The only thing I've heard is to make the stores smaller"
reitdude42 mentioned some of the points, but you are intentionally ignoring them (and we are being called "delusional").
Sentiment: Strong Buy
Very well put! The focus should always be on fundamentals, but investors / speculators / the media tend to lose focus and thus create inefficiencies. Joly + McCollam + Best Buy will be a bumpy ride in the short term, but one that will reward long term shareholders down the road, especially when your entry is in the teens.