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Best Buy Co., Inc. Message Board

  • steffenhilgemann steffenhilgemann Jan 18, 2013 6:36 AM Flag

    Bullish signs for Best Buy ?

    Some bullish aspects I wanted to share my thoughts on:

    Credit: Best Buy bonds have rallied sharply after the Christmas sales announcement, the March 2016s yield 4.9% on a BB rating, that's pretty good and indicates that bond holders think they'll get their money in 2016 (i.e. Best Buy isn't going anywhere).

    Earnings: If you came down from another planet and hadn't seen all the noise in the press over the last year, and solely focused on the numbers (including a conservatively modeled Q4), you'll find that you have a company here with solid cashflow (decreasing but large), and $2.25-2.60 in EPS last year. If someone asked you, what would you conservatively pay to acquire the business, you would probably come up with a number between 8-10x earnings .. i.e. $18 to $26 (8x2.25 and 10x2.6).

    Whether Schulze buys this out or not, Best Buy is worth way more than $14.60 .. it's just a matter of time. If he does indeed bid, he'll likely bid in the range of $18-26, otherwise there won't be many takers..

    Sentiment: Strong Buy

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    • Agree completely. Let me add a few more thought:

      The sales tax advantage of online retailers is going away.

      PE will not have to pay a dividend and can redeploy those dollars to pay down the purchase loan.

      BBY revenue is about 50B and AMZN is about 55B but mkt cap is no where near as close. Yet, BBY is profitable. Makes you wonder about investor intelligence.

      A slight increase in profitability will have a dramatic impact on earnings and thus valuation. Having shopped at BBY for years, I know there is a lot of room for improvement.

      We live in an instant gratification society. When I need a new dryer because mine broke, I could wait to order online. I went to the local BBY and bought it. I read another post about a person needing and wanting TV same day. If you can save 5-10% on sales tax you might wait, but that arbitrage is all but gone now.

      IMO, a buy does get announced soon and we will see the stock price exceed the initial price due to a short squeeze.

      • 2 Replies to stockmamma
      • Totally disagree. BBY is NOT profitable. They've been losing money every quarter and the cash balance continues to decrease. I do LBO's for a living and this will be a hard stock to buyout. As a PE firm, we look to take out as much cash as possible and leverage up. Not many lenders will be attracted to a stock that has a decreasing cash balance and this will mean more equity. I hope the best for BBY, but I just don't see it in any of the above comments. Look at HGG for advice, much better balance sheet and they just released downward revised finacials.
        My best,

        Sentiment: Strong Sell

      • And here is my observations regarding why the buyout will occur:

        Executives left - knowing they will be terminated when the buyout occurs.
        Board members left - knowing they will be terminated when the buyout occurs.
        Millions of dollars will be saved (no more dividends will have to be paid out).
        BBY sales have stablized and will improved with the Amazon sales tax loop hole closing.
        Schulze can make billions by reorganizing and taking BBY public again in a couple of years.

    • Now the fact that Amazon must collect sales tax helps immensely! This alone should add $2 per share to BBY!!

      • 1 Reply to qzq044qzq044
      • I agree with stock mamma's great advice on valuing BBY as a company. Amazon is big, and probably here to stay, but brick and mortar stores such as BBY are not going away. They fill this "I want it now" market niche much much better than Walmart, Costco, Target. These stores sell EVERYTHING, and BBY just does ONE thing, well: electronics. Its like trying to make a car that can haul 18,000 pounds like an 18 wheeler AND gets 40 miles per gallon like a Chevy Cruze. You can have one or the other, not both. We are keeping Cruze's and 18 wheelers, just like we are keeping Best Buy and Amazon. I use them both.
        Strong Buy

        Sentiment: Strong Buy

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