A Look At Best Buy’s Valuation
Best Buy (NYSE: BBY) is executing on its strategy to cut costs, optimize square footage, grow online sales and stabilize its revenue stream. The retailer returned to real growth in fiscal 2018, with revenue growth of 7% y-o-y to around $42 billion, primarily driven by an enterprise comparable sales increase of nearly 6%. This growth followed largely flattish revenue growth in recent fiscal years. In addition, the company’s revenue grew 5% year-over-year (y-o-y) to around $9.4 billion in the first half of fiscal 2019, largely due to an enterprise comparable sales increase of 6.6%. The company benefited from stronger consumer demand across major categories, particularly the appliances, computer, and mobile phone categories.
We have summarized our forecasts on Best Buy’s Fundamental Value Based On Expected Fiscal 2019 Results in an interactive model. You can modify assumptions such as changes in expected segment revenue or EBITDA margins to see how they impact the company’s value. The charts below show some of the key steps in identifying Best Buy’s valuation sensitivity to changes in its segment revenues. We detail how changes in revenue or segment EBITDA margin impacts total EBITDA, which then impacts its enterprise value (assuming a constant EBITDA multiple).
Best Buy’s stock price has fluctuated between $66 and $82 since the beginning of fiscal 2019. We have maintained our long-term price estimate for Best Buy at $76, which is around 10% ahead of the current market price.
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Detailing Forecasts For Best Buy
We expect Best Buy to generate around $42 billion in revenues in fiscal 2019, and earnings of almost $1 billion. Of the total expected revenues in fiscal 2019, we estimate $38 billion in the Best Buy U.S. business and almost $4 billion in the Best Buy International business. Best Buy closed its small mobile stores across the U.S., and therefore we have excluded these numbers from our forecast. To add to that, the company also expects these mobile store closures to negatively impact full-year fiscal 2019 revenue by approximately $225 million, with a flat to slightly positive impact on its operating income. It should also be noted that fiscal 2019 has 52 weeks as compared to 53 weeks in fiscal 2018.
Looking ahead in fiscal 2019, the retailer is now calling for same-store sales to climb as much as 4.5%. In addition, the company expects its profits to range between $4.95 and $5.10. The retailer’s investments in specialty labor, supply chain, as well as increased depreciation related to strategic capital investments and ongoing pressures in the business, including approximately $40 million of lower profit share revenue, will be partially offset by a combination of returns from new initiatives and ongoing cost reductions and efficiencies.
Our forecasts for the year are summarized in our dashboard for Best Buy. If you have a different view, you can modify various inputs to see how updated inputs impact the company’s valuation. You can also share the links to scenarios created on our platform.
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