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Best Buy Co., Inc. Message Board

  • researcherj researcherj Dec 9, 2012 9:57 AM Flag

    BestBuy - my observations -

    Disclaimer: These are my opinions and I could be wrong in my observations,calculations,projections
    and points I make below. please do your do your own due diligence before making a trade.What I seek is a healthy discussion on why I may be right or wrong.
    Some observations on what I see based on the income statement link for BBY from Yahoo:
    - BBY still sells 50B worth of goods/year although it could no longer command great margins
    - Looking at its most recent quarter incomes its revenues were 10.55B and had a 24.3% gross margin.
    - Operating margin shrunk to 1.176% (excluding non recurring items)
    - Even if best buy makes 1.1% margin (on an extremely conservative estimate) on 50B sales,
    it would be 550M operating income.
    - That is 550M/337M = $1.63 operating income
    - Assume 30% taxes (150M) and 120M of interest charges per year
    - 550M-165M-120M = 265M (Net income)
    - At about 337 Million shares, BBY should have 78.63 cents earnings per share.

    Other observations:
    Amazon, Regular brick&morter retailers have cut into BBY's market share. However since BBY has
    also cut its overall margin and price matching with its competitors,it should counter such a trend
    going forward. BBY still held a gross margin of 24.31% on its sale even in the
    operating margin shrunk last quarter. There may be chances to reduce its operating expenses such as
    parts of its SG&A which could boost its margins.Amazon is increasingly losing its tax
    advantages as a number of states aremaking Amazon to collect income taxes.
    Amazon can't cut its price beyond a level. Also noticed Amazon had a negative operating
    income in the recent quarter ?
    The 1.1% operating margin for BBY assumed above could be too conservative. However if it
    gets better than that- say 1.7% then we are looking at 850M operating
    income with 475M to show for net income or $1.4/share net income. Add the fact that BBY is still a viable business with an excellent brand image and the last year's loss was due to write-off on minority interest. There seems good chance
    for it to revive itself be it under the current management or the prospective buyer.
    I checked out of curiosity on what was S&P stock report (dated Dec 1) estimates for BBY's earning for Fiscal 2013 it is $2.40/share!

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