Retail Stocks

Best Buy Co Inc Valuation – February 2019 $BBY

Company Profile (excerpt from Reuters): Best Buy Co., Inc., incorporated on October 20, 1966, is a provider of technology products, services and solutions. The Company offers products and services to the customers visiting its stores, engaging with Geek Squad agents, or using its Websites or mobile applications. It has operations in the United States, Canada and Mexico. The Company operates through two segments: Domestic and International. The Domestic segment consists of the operations in all states, districts and territories of the United States, under various brand names, including Best Buy, bestbuy.com, Best Buy Mobile, Best Buy Direct, Best Buy Express, Geek Squad, Magnolia Home Theater, and Pacific Kitchen and Home. The International segment consists of all operations in Canada and Mexico under the brand names, Best Buy, bestbuy.com.ca, bestbuy.com.mx, Best Buy Express, Best Buy Mobile and Geek Squad. As of December 31, 2016, the Company operated 1,200 large-format and 400 small-format stores throughout its Domestic and International segments. It has a global sourcing operation to design, develop, test and contract-manufacture its brand products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of BBY – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $15,734,394,268 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.10 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 330.85% Pass
6. Moderate PEmg Ratio PEmg < 20 15.00 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.42 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.10 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.32 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.90
MG Growth Estimate 15.00%
MG Value $150.10
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $56.53
MG Value based on 0% Growth $33.14
Market Implied Growth Rate 3.25%
Current Price $58.47
% of Intrinsic Value 38.95%

Best Buy Co Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.33 in 2015 to an estimated $3.9 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.25% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Best Buy Co Inc revealed the company was trading above its Graham Number of $38.2. The company pays a dividend of $1.36 per share, for a yield of 2.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 15, which was below the industry average of 27.33, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.89.

Best Buy Co Inc receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$3.89
Graham Number $38.20
PEmg 15.00
Current Ratio 1.10
PB Ratio 5.42
Current Dividend $1.36
Dividend Yield 2.33%
Number of Consecutive Years of Dividend Growth 5

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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2018
Total Current Assets $10,901,000,000
Total Current Liabilities $9,933,000,000
Long-Term Debt $1,280,000,000
Total Assets $15,000,000,000
Intangible Assets $1,304,000,000
Total Liabilities $11,988,000,000
Shares Outstanding (Diluted Average) 279,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.08
Jan2018 $3.26
Jan2017 $3.81
Jan2016 $2.56
Jan2015 $3.49
Jan2014 $1.53
Jan2013 $0.00
Feb2012 -$3.36
Feb2011 $3.08
Feb2010 $3.10
Feb2009 $2.39
Feb2008 $3.12
Feb2007 $2.79
Feb2006 $2.27
Feb2005 $1.96
Feb2004 $1.41
Feb2003 $0.21
Feb2002 $1.18
Feb2001 $0.83
Feb2000 $0.73
Feb1999 $0.46

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.90
Jan2018 $3.18
Jan2017 $2.85
Jan2016 $1.87
Jan2015 $1.33
Jan2014 $0.46
Jan2013 $0.29
Feb2012 $0.85
Feb2011 $2.93
Feb2010 $2.82
Feb2009 $2.62
Feb2008 $2.59
Feb2007 $2.13
Feb2006 $1.67
Feb2005 $1.28
Feb2004 $0.92
Feb2003 $0.68

Recommended Reading:

Other ModernGraham posts about the company

Best Buy Co Inc Valuation – April 2018 $BBY
Best Buy Co Valuation – July 2016 $BBY
Best Buy Stock Analysis – 2015 Annual Update $BBY
19 Companies in the Spotlight This Week – 3/15/14
Best Buy Company Inc. (BBY) Annual Valuation

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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