Best Buy will report Tuesday before the bell, and analysts expect $0.53 in eps ( a decline y/y of 12%) and $11.5 bl in revenues (for 1% y/y growth).
The stock is incredibly cheap at 0.18(x) market cap to 4-quarter trailing sales, less than 4(x) 4-quarter trailing cash-flow, and a 13% free-cash-flow-yield.
BBY’s problem is that they are getting crushed by Amazon and Walmart/ Costco in the Plasma, HD TV and electronics markets thanks to severe price cutting by the above retailers, particularly Amazon, and a lower-cost distribution channel.
BBY is a compelling turn-around story given that the brand is still intact, and the cash-flow generation is significant, but i’d wait and see what tomorrow’s earnings results look like, and how the BBY Mobile and Tablet Marketplace initiatives evolve. The future for BBY is the Mobile Marketplace and the Tablet Marketplace, rather than TV’s and such, where BBY can add consultative value to the retail purchase, versus a commodity buy on a TV or electronics purchase. BBY will have a tough time competing on price.
A number of value funds like Oakmark here in Chicago have taken an interest in the stock, given its 3.5(x) EBITDA valuation, id’ just rather see some good news from the retailer in terms of comp’s and earnings.
We are long a small position in BBY given the valuation, and want bto buy more but need a little encouragement.
Last qtr’s eps guidance did NOT include any share repurchases for the quarter, so BBY could surprise to the upsidec in terms of eps, if they spend some of this excess cash on repo’s.
Like the State of Missouri’s slogan i.e. the show me state, BBY is the show me stock. Show me that the BBY Mobile Marketplace can work or the BBY Tabl;et Marketplace can work as a retail strategy, and even if the stock pops nicely, it would still be very cheap on an absolute valuation strategy. Revenue estimates look like they are starting to stabilize, but BBY needs positive comp’s (three consecutive quarters of neg comp’s) to stabilize margins and get earnings growing again.
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