These Stocks Are Better Buying Opportunities Compared To Best Buy

by Trefis Team
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BBY
Best Buy
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We believe that FedEx Corporation stock (NYSE: FDX), Regeneron Pharmaceuticals stock (NASDAQ: REGN), D.R. Horton Stock (NYSE: DHI), Progressive Corp Stock (NYSE: PGR), and Cigna Corp Stock (NYSE: CI) are currently better valued than Best Buy stock (NYSE: BBY). Best Buy’s current price-to-operating income ratio of 11x is higher than levels of 9x for FDX and REGN, and 6x for DHI, PGR, and CI. But does this gap in valuation make sense? We don’t think so, especially if we look at the fundamentals. More specifically, we arrive at our conclusion by looking at historical trends in revenues and operating income for these companies. Our dashboard Better Bet Than BBY: Pay Less To Get More From S&P 500 Peers FDX, REGN, DHI, PGR, and CI has more details – parts of which are summarized below.

1. Revenue Growth

Best Buy’s Revenue grew at an average rate of 4% over the last three years, as compared to FedEx’s Revenue growth of 9%, Regeneron Pharmaceuticals’ Revenue growth of 15%, D.R. Horton’s Revenue growth of 13%, Progressive’s Revenue growth of 17%, and Cigna’s Revenues growth of 79%. But even if we look at the revenue growth over the last twelve-month period – BBY’s 12% revenue growth is worse compared to a 21%, 68%, 38%, 15%, and 8% growth for FDX, REGN, DHI, PGR, and CI, respectively.

  • FedEx Corp provides a portfolio of transportation, e-commerce, and business services through companies that compete collectively, operate independently, and manage collaboratively, under the FedEx brand. The company had a stellar FY 2021 (ended May 31), growing revenue by 20% as it successfully tapped into higher package delivery demand. In the recent fiscal Q1, the company’s revenue increased by 14% year-over-year (y-o-y), as it earned more revenue per package and increased total packages delivered. However, it saw higher spending and lower profitability y-o-y due to higher labor costs and supply chain constraints.
  • Regeneron Pharmaceuticals is a biopharmaceutical company also known as the maker of Covid-19 antibody cocktail REGEN-COV. In the second quarter, Regeneron’s revenue skyrocketed 163% y-o-y with adjusted earnings per share jumping 260% higher. The biotech’s lineup also includes several other products with fast-rising sales, notably autoimmune-disease drug Dupixent and cancer drug Libtayo.
  • D.R. Horton is the largest homebuilder by volume in the U.S., closing on 80,276 homes in the last 12 months. Given the recent boom in housing prices and low housing supply across the U.S., the company’s business has done well in recent quarters. In the recent Q3 as well (ended June), the company’s revenue was up 35% y-o-y to $7.3 billion and net income was up 77% to $1.1 billion.
  • Progressive Corp is an insurance holding company that owns a 12.9% share of the personal auto insurance market and a 12.1% share of the commercial market in the U.S.  In the most recent quarter, Progressive saw net premiums increase 13.8%. However, larger loss expenses caused net income to decline 56% to $790 million in the quarter.
  • Cigna is a health insurance company that saw revenue rise 10% to $43 billion and also posted adjusted quarterly profit of $5.24 per share in the recent Q2. The company also launched a new initiative aiming to unlock some of the potentials of blockchain technology. This can give investors exposure to the emergence of blockchain, without taking on as much risk.

2. Operating Income Growth

BBY’s three-year average operating income growth of 9% is also lower than that of 79% for FDX, 24% for REGN and DHI, 48% for PGR, and 52% for CI. Better revenue growth for the latter led to higher operating income. Looking at the last twelve-month period as well, the peer companies’ growth in operating income also compares favorably to BBY.

The Net of It All

FedEx Corporation, Regeneron Pharmaceuticals, D.R. Horton, Progressive Corp, and Cigna Corp have seen higher growth in revenues and operating income than Best Buy in the last twelve months, as well as the last three years. Yet, these companies have a comparatively lower price-to-operating income ratio when compared to BBY. This underperformance in Best Buy’s revenue and operating income growth compared to these five peer companies reinforces our conclusion that BBY stock is expensive compared to the mentioned S&P 500 companies, and we think this gap in valuation will eventually narrow over time to favor the less expensive names.

Also, Best Buy Peer Comparisons summarizes how the company fares against peers on metrics that matter.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

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