Is Best Buy’s Stock Fairly Priced?

Best Buy‘s (NYSE: BBY) stock price has fluctuated between $53 and $89 since the beginning of 2019. We have maintained our long-term price estimate for Best Buy at $83, which is around 6% below the current market price. We have summarized our forecasts on Best Buy Valuation: Expensive or Cheap in an interactive dashboard. You can modify assumptions such as changes in expected segment revenue, adjusted net income margins, or multiple valuation to see how they impact the company’s stock price.

We arrive at the stock price estimate for Best Buy as:

Stock Price = (Total Revenue x Net Income Margin / Shares Outstanding) x P/E Multiple

#1. Estimating Best Buy’s Total Revenues:

Total Revenues have increased from $39.4 billion in FY 2017 (year ending Jan 2017) to $42.9 billion in FY 2019, and could grow slightly to $43.5 Billion in FY 2020. The retailer’s investments in specialty labor, supply chain and increased depreciation related to strategic capital investments, as well as ongoing pressures in the business, will be partially offset by a combination of returns from new initiatives and ongoing cost reductions and efficiencies. For full-year fiscal 2020, Best Buy expects revenues of $43.2 billion to $43.6 billion.

#2. Deriving Best Buy’s Adjusted Net Income:

Adjusted Net Income grew from $1.1 billion in FY 2017 to $1.5 Billion in FY 2019, and we expect it to be around similar levels in FY 2020 led by stable revenue and net income margin growth.

#3. Determining Best Buy’s Adjusted EPS:

Adjusted EPS has grown from $3.56 in FY 2017 to $5.32 in FY 2019, and we estimate it to be $5.88 in FY 2020. EPS growth can also be attributed to lower shares outstanding.

#4. Estimating Best Buy’s Share Price:

Our Price Estimate of $83 For Best Buy’s Stock is based on our Detailed Valuation Model, and implies a 14.1x  P/E Multiple on expected FY 2020 Adjusted EPS of $5.88

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