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.
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!
Thanks. In a short term the price perhaps swings based on buyout. With a good management team in place the operating margins may be improved and share holder value created longer term even without a buyout IMHO.