Company Description: Best Buy Co., Inc. engages in the retail of technology products in the United States, Canada, and international.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
BBY is trading at a discount to only 3.) above. When also considering the NPV MMA Differential, the stock is trading at a 43.1% premium to its calculated fair value of $59.32. BBY did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
BBY earned one Star in this section for 3.) above. BBY earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 21 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $485 is below the $1,400 target I look for in a stock that has increased dividends as long as BBY has. The stock's current yield of 4.43% exceeds the 3.75% estimated 20-year average MMA rate.
Peers: The company’s peer group includes: DICK'S Sporting Goods, Inc. (DKS) with a 2.0% yield, Ulta Beauty, Inc. (ULTA) with a 0.0% yield, and Academy Sports and Outdoors, Inc. (ASO) with a 0.9% yield.
Conclusion:BBY did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks BBY as a 1-Star Very Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $60.18 before BBY's NPV MMA Differential increased to the $1,400 minimum that I look for in a stock with 21 years of consecutive dividend increases. At that price the stock would yield 5.0%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,400 NPV MMA Differential, the calculated rate is 5.7%. This dividend growth rate is higher than the 2.2% used in this analysis, thus providing no margin of safety. BBY has a risk rating of 2.00 which classifies it as a Medium risk stock.
The company's free cash flow payout at 79% (first review) is above my desired maximum of 60%. The low debt to total capital of 57% (first review) is above my desired maximum. BBY is trading well above my calculated fair value of $59.32. For now, I will wait for a more opportune time before initiating a position in BBY.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in BBY (0.0% of my Dividend Growth Portfolio).
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