bestbuy2
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Best BuyTRANSCRIPT
Best Buy
Best Buy Stock ReportBy Brian KnappInvestment Funds
Dr. FrenchExecutive Summary
As the nations largest retailer of consumer electronics, Best Buy looks to be an attractive choice for investors. Best Buy is aggressively expanding into new markets and solidifying their presence where they currently operate. Best Buys beta is higher than the portfolios average beta, but does not show signs of any significant declines in value in the near future. Now is an excellent time to purchase Best Buy stock because it is the beginning of the Christmas buying season, a time that the stocks value has increased every year for the past eight years. The mean one year target for Best Buy stock is $53.97, and most analysts believe it will easily achieve this target. Earnings growth over the past decade has averaged 36%. Sales growth has also consistently outperformed the industry with an average of 19.6%.My recommendation for Best Buy is to buy. This is also the opinion of most analysts. Best Buys stock rating on Yahoo! is 2.1, buy. The following is a list of pros and cons to purchasing and holding Best Buy in the portfolio:
Pros
-Market leadership-Best Buy is the market leader for consumer electronics.
-Diversified-Best Buy sells everything from batteries to computers to washers and dryers.
-Rapid, sustainable growth-Analysts predict a growth rate of 13-18% per year for the next 5 years.
-Solid performance recordCons
-Beta is higher than portfolio average and would raise the portfolios beta-Somewhat cyclical-the company goes through periods of low sales throughout the year
-Somewhat sensitive to economic conditions
Success in the Christmas buying season is critical for Best Buy to make revenue and profit targets. By operating in more markets and being able to outperform all other major competitors, Best Buy looks to be the dominant player in the market for years to come.
Company Description
Best Buy is a Fortune 100 growth company and retailer of consumer electronic goods, selling products ranging from small personal electronics accessories to major office equipment and household appliances. The company operates stores and websites under the following names: Best Buy, Future Shop, Magnolia Audio Video, and Geek Squad. Best Buy also operates an eBay outlet. The future Shop and Magnolia Audio Video are smaller market stores specializing in narrower product segments. The Geek Squad operates in Best Buy stores as a computer help desk that services computers and peripherals. Best Buy was founded in 1966 by Richard M. Schulze as Sound of Music, Inc. The name was changed to Best Buy in 1983. The company is headquartered in Richfield, Minnesota. There are currently 850 stores including 830 U.S. Best Buy locations. Best Buys current expansion goal is to open 62 new stores in fiscal year 2006 and 58 stores for FY2007. Best Buys target market is upscale suburban moms and any young, tech savvy consumer in middle to upper middle income class. Best Buy is currently focusing on sales of DVD movies and small, personal electronic devices. Best Buy is the number two seller of Apples iPod, behind only Apple itself. iPod has contributed to a significant increase in store traffic as well as revenues from MP3 players.
Best Buy is currently in the process of redesigning all of its stores to be customer centric, meaning that they are focusing efforts to put people first and products second. The goal is to make stores simple to navigate as well as pleasant and easy to shop.
Best Buy is governed by a 12 person Board of Directors that over sees its top management team that consists of the CEO, President, CFO, COO, 8 executive vice presidents and two senior vice presidents. Below this top management team are regional and district managers that are each in charge of several stores, depending on the market. Each store has a general manager, assistant manager and several department managers.
Best Buy Top Corporate Management Team
Bradbury H. Anderson
Vice Chairman and CEO
Richard M. SchulzeFounder and Chairman
Allen U. Lenzmeier
Vice Chairman
Brian J. Dunn
President
Retail, North America
Shari L. Ballard
Executive Vice President
Human Capital and Leadership
Ronald D. Boire
Executive Vice President
General Merchandise Manager
Thomas C. Healy
Executive Vice President
Segment Lead
Darren R. Jackson
Executive Vice President
Finance and CFO Kevin T. Layden
President and COO
Best Buy Canada
Michael A. Linton
Executive Vice President
Consumer and Brand Marketing
and Chief Marketing Officer
Michael London
Executive Vice President
Sourcing and Alliances
John C. Walden
Executive Vice President
Customer Business Group
Robert A. Willett
Executive Vice President
OperationsSusan S. HoffSenior Vice President and
Chief Communications Officer Joseph M. JoyceSenior Vice President General Counsel and
Assistant SecretaryEconomic and industry environment
Best Buy does not manufacture any of the products it sells and thus does not occupy one specific place in the general life cycle of products. The market for electronics goods is mature and also growing. There are many products that Best Buy sells that are in the maturity stage of their life cycle, CRT televisions, home stereo, and washers and dryers. But as with all technology, many of their other products are new to the world ideas or improvements on older products. MP3 players, computers, and plasma televisions are just a few of the products marketed by Best Buy that are in the introduction or growth stages of their life cycles. As technology is continuously evolving, Best Buy devotes a large budget to monitoring emerging market trends and products, in order to stay on top of new market conditions. By constantly updating inventory, the company can ensure customers that they have come to the right place to purchase their electronic devices.
Technology in general, can also be in mature and growth stages as there are many different types of products. The technology sector, as with Best Buy, does not occupy a single position in its life cycle. Many technologies are always being improved upon, invented, or becoming obsolete. The electronics market in general is the same way.
There will always be demand for many electronics products. However, their sales are contingent upon economic factors. During times of recession, consumers do not spend as much on luxury goods. There can also be new technologies that come along and disrupt the climate of the market, such as the plasma TV. But when these innovations arise Best Buy is ready and simply integrates them into their product offering.
Best Buy is currently growing at a phenomenal rate. With hopes of adding more than 100 stores over the next two years and sustained 36% annual growth over the past ten years, Best Buy is solidifying its position as the market leader in the electronics and household goods industry. In addition to expanding into new markets, a 10.2% yoy growth in revenues is a strong sign of continued success.
More than 80% of the products that Best Buy sells are manufactured in various Asian countries, including China. China looks to become an attractive trading partner in the near future as they are turning to a more capitalistic economy. This will offer many benefits to electronics marketers as they will now be able to achieve more competitive prices from Chinas assembly plants. Best Buy will in turn be able to purchase products from their suppliers at a lower cost and will be able to achieve higher margins. In the past, Best Buys pricing structure has been relatively consistent. They hold a great amount of power in their supply chain and can negotiate the best possible contract conditions. Best Buy generates more sales than other competitors and can achieve greater economies of scale in their operations, resulting in stable sales, pricing, and profits. The primary factor affecting prices is industry competition. Best Buy generally offers the lowest prices and as a result may realize lower returns. Economic conditions do have some effect on products however. As more and more technological advances occur, the prices of existing technologies are drastically reduced. This can be observed in the pricing of plasma TVs. Five years ago, there were no plasma screens for less that $10,000. Today, they are selling good quality units for less than $3,000. However, inflation is a factor as with all goods. A 1-3% price increase for similar goods, utilizing the latest technology can be expected. Also during times of crisis, such as after Katrina and Rita when oil and transportation costs increase, prices may reflect as such. 35% of Best Buys operating profit goes toward tax expense. In FY 2005, Best Buy paid $509 million in taxes on $1,443 million in profit from continuing operations. This is the typical tax bracket for a corporation of this size.
Best Buys domestic competition consists of any avenue of purchasing consumer electronics. The primary competition consists of Circuit City, Radio Shack, Wal-Mart, Dell, Sears, and Ultimate Electronics, and as of late American. Best Buy also views home improvement stores, video wholesale clubs and rental stores, mass merchants and other small specialty retailers as competition as they all compete for consumers discretionary income. Exhibit 1 below shows market share, comparing Best Buy to Circuit City and Radio Shack. Wal-Mart, Sears and Dell were excluded because there are no figures indicating what portion of their business comes from electronics products, and what portion of Best Buys revenue comes from computers.
The threat of new entrants into the electronics industry can be considered medium. New businesses are opening at a rate of more than one every day in this industry, but the threat of them taking any significant sales from Best Buy is low. The capital requirements, relationships, and industry knowledge to succeed as Best Buy has, create high barriers to entry in the market and thus have helped Best Buy to entrench its position. Foreign competition could become a threat in the future, in the U.S. Best Buy operates primarily in the U.S. with some stores opening in Canada. There is little to stop a foreign competitor except for Best Buys brand equity. Best Buy can leverage its familiar name through advertising and this alone can discourage many competitors from entering the market. Best Buy has recently shown its superiority by opening locations within a half-mile of Circuit City locations and far outperforming this competitor. There have been several instances in the past 3 years that the Circuit City location has closed down. It is difficult for any competitor, foreign or domestic to compete with Best Buys market expertise. Below is an analysis of market share and product groups contributing to revenue.
Company Position
Best Buy has the largest advertising budget of any of its direct competitors. With annual promotions budgets of $712 million for 2005, $675 million for 2004 and $567 for 2003, Best Buy is able to reach a broad audience. Best Buys advertising consists primarily of television, and print ads. In major cities, Best Buy runs a several page ad 2-5 times every week detailing the in-store specials and sales for the current and upcoming weeks. Best Buy focuses its advertising dollars on promoting products in the bricks and mortar locations as well as the online store. In addition to traditional advertising, Best Buy also runs many price promotions such as rebates throughout the year. Starting in 2006, rebates will be phased out however. In their place, more items will be run on traditional sales. Running alongside promotional offers, customers participate in a loyalty program in which they can earn points toward future purchases. In addition to traditional advertising, Best Buy has a community outreach program through which it generates goodwill by sponsoring charitable events throughout the country. Best Buy also donates 1.5% of EBIT to various charitable programs.
In store marketing is the current issue Best Buy is taking on. Currently all locations are being completely reoriented to be highly customer-centric. The goal is to make stores easy to navigate, while guiding customers past as many departments as possible much like a casino. In addition to making the layout better for customers, more services are now being offered such as complete service for computers, installation of any product in the store, and a friendly, knowledgeable sales staff. One pleasantry that Best Buy offers is that its staff is paid salary, not on a commission basis. There will never be any pressure to purchase. One analysts opinion of this marketing effort is as follows:
We have a buy opinion on Best Buy and a hold opinion on Circuit City. With Best Buy, over the longer term we expect its customer-centricity initiative will translate into higher sales and margins. Our 12-month target price is $50. With Circuit City, we have a 12-month target price of $18.
Best Buys pricing policy is very flexible and needs to be as such in the market in which it operates. Technology is the primary driver of price in the electronics market. As new technologies emerge, others become obsolete and therefore are less expensive. As new products are introduced, they take the spotlight, with advertising and promotions as well as placement in the store. These products are more expensive than their less technologically advanced counterparts. As mentioned earlier, Best Buy has not had any serious interruptions in supply or demand that would necessitate a change in pricing structure. The third quarter of 2005 did however cause some concern as Best Buy lowered earnings expectations as a result of ongoing costs due to hurricanes Katrina and Rita. Best Buys prices consistently remain relatively stable and are adjusted primarily based on the technology being sold. Best Buy, being one of the largest electronics retailers in the world, is an excellent customer. All major suppliers of electronics look to Best Buy as an outlet of their goods. Best Buy holds great bargaining power over both suppliers and customers, as both are many and switching costs are low due to the structure of the industry.
Substitution appears to be of little threat to Best Buy as it is actively engaging its competitors in various markets. In several markets, Best Buy and Circuit City are located very close together. In more than almost one-quarter of these markets, Circuit City has closed its doors or is preparing to do so in the next year. There are very few retailers that can compete with Best Buy on price, product selection or availability. Best Buy manages its supply chain very efficiently allowing for volumes greater than any other electronics retailer.
Technology
Best Buys corporate office maintains buyers specifically to be knowledgeable of the latest emerging technology. Best Buy wants to offer its customers the newest products at the best prices. As there is little technology that goes into Best Buys daily operations (they do not manufacture, but are simply a reseller of goods), there is no chance of a competitive disadvantage as a result of technology. Best Buy has not conducted any material research and development in the past three fiscal years, as there is little need. The biggest technological threat to Best Buy is the new abundance of online retailers. With little overhead, these businesses can offer the best prices achievable. eBay is another threat. This online auction website has become quite popular and is becoming a more trusted name for everything from collectibles to major household purchases. However, the vast majority of consumers is still wary of major online purchases and chooses to pay slightly more for the security of a trusted name and a face to talk to should issues arises. While these online sellers may sometimes be able to beat Best Buy on price, they will always lag on service, logistics, and a name that has been trusted for over 20 years.
Production, Plant Property and Equipment
As previously noted, Best Buy does not manufacture any of the products it sells. Manufacturing equipment is not an issue in analyzing operations. Best Buy owns 30.1% of the buildings out of which it operates and owns all of the in store computers, software, and operations equipment. The remaining portion of property is on leasehold basis, In fiscal 2005 Best Buy contributed $1.12 billion in leasehold improvements. Recent AchievementsAt Best Buy, customer centricity is about giving employees more power to satisfy the unique needs of the customers who shop their stores. In 2005 the following goals were accomplished:
-Completed lab tests and launched a group of 67 stores with successful, scalable elements of the new operating model
-Expanded Geek Squad to all North American stores, including 24 hr emergency assistance
-Boosted revenues of Canadian stores, incorporated dual branding strategy
-Launched 3 year process of reengineering supply chain, to focus on direct sourcing and private labels
-Outsourced information technology functions to simplify infrastructure
-Reorganized resources to focus on long term growth, resulting in smaller, closer executive teamGoals for Fiscal 2006 and Beyond-Launch a program to convert all U.S. stores to customer centric operating model
-Expand and strengthen service offerings, including Geek Squad and installation
-Boost employee retention to deliver better customer experiences and productivity
-Add individualized marketing capabilities to mass marketing
-Simplify internal processes so that they respond better to changing customer needsFinancial Statement Analysis
Accounting Procedures
Best Buy values inventory at the lower of market value or average cost and property and equipment at cost. Assets are depreciated straight line over their estimated useful life. Short and long-term securities investments consist of municipal and U.S. government debt securities. These securities are classified as available for sale and amortized at cost.
Financial Statements
Balance Sheet
Amounts in millions 20052004
Assets
Current Assets
Cash And Cash Equivalents470245
Short Term Investments28782355
Net Receivables375343
Inventory28512607
Other Current Assets329174
Total Current Assets69035724
Property Plant and Equipment24642244
Goodwill513477
Intangible Assets4037
Other Assets226170
Total Assets102948652
Liabilities
Current Liabilities
Accounts Payable28242460
Total Current Liabilities49594501
Long Term Debt528482
Long Term Liabilities358247
Total Liabilities58455230
Stockholders' Equity
Preferred Stock
Common Stock3332
Retained Earnings952836
Other Stockholder Equity14986
Total Stockholder Equity44493422
Income Statement
Amounts in millions except per share amounts20052004
Net Sales2743324543
Cost of Goods Sold2093818677
Gross Profit64955871
Selling General and Administrative50534567
Net Operating Income14421304
Interest Income/Expense1(8)
Income Before Tax14431296
Income Tax Expense509496
Income/Expense discontinued operations50(66)
Net Income984705
Basic Net Earnings Per Common Share3.022.18
Diluted Net Earnings Per Common Share2.942.13
Statement of Cash Flows
PERIOD ENDING26-Feb-0528-Feb-041-Mar-03
Net Income984,000705,00099,000
Operating Activities, Cash Flows Provided By or Used In
Depreciation459,000385,000310,000
Adjustments To Net Income(33,000)115,000510,000
Changes In Accounts Receivables(30,000)(27,000)(89,000)
Changes In Liabilities891,000765,000177,000
Changes In Inventories(240,000)(507,000)(225,000)
Changes In Other Operating Activities(190,000)(75,000)(115,000)
Total Cash Flow From Operating Activities1,841,0001,361,000667,000
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures(502,000)(545,000)(725,000)
Investments(671,000)- -
Other Cashflows from Investing Activities7,0002,00066,000
Total Cash Flows From Investing Activities(1,166,000)(543,000)(659,000)
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid(137,000)(130,000)-
Sale Purchase of Stock56,00014,00040,000
Net Borrowings(371,000)(17,000)5,000
Other Cash Flows from Financing Activities(7,000)- -
Total Cash Flows From Financing Activities(459,000)(133,000)45,000
Effect Of Exchange Rate Changes 9,0001,000-
Change In Cash and Cash Equivalents $225,000$686,000$53,000
Financial Ratios/comparison to industry
Total Returns %Data through 10-25-05
20002001200220032004YTD
Stock-41.2151.9-51.4117.414.613.3
+/- Industry-7.555.1-7.630.7-4.511.7
+/- S&P 500-32.1163.8-29.388.83.813.2
Trailing Total Returns1 Month3 Month1 Year3 Yr Avg5 Yr Avg10 Yr Avg* YTD
Stock2.0-10.615.944.615.331.313.3
+/ Industry1.2-2.49.419.311.114.411.7
+/ S&P 5003.2-8.34.632.616.321.813.2
CompanySymbolPriceChangeMarket CapP/E
Best Buy Co. Inc.BBY44.93+2.11%22.13B21.13
RadioShack Corp.RSH22.96+0.04%3.54B11.88
Circuit City Stores Inc.CC18.09+0.95%3.29B50.25
GameStop Corp.GME34.38+0.85%1.78B29.51
Guitar Center Inc.GTRC61.76+1.61%1.60B26.72
Conns Inc.CONN28.70+1.41%672.27M21.23
BBY VS. INDUSTRY LEADERS
Statistic
Industry Leader
BBY
BBY Rank
Market CapitalizationBBY22.13B
-
1 / 10
P/E Ratio (ttm)CC50.25
21.13
5 / 10
PEG Ratio (ttm, 5 yr expected)CC1.99
1.16
4 / 10
Revenue Growth (Qtrly YoY)GME0.20%
0.10%
4 / 10
EPS Growth (Qtrly YoY)TWTR4.12%
0.23%
5 / 10
Long-Term Growth Rate (5 yr)GTRC20.0%
16.0%
4 / 10
Return on Equity (ttm)RSH35.16%
24.41%
2 / 10
Long-Term Debt/Equity (mrq)RSH0.655
0.114
5 / 10
Dividend Yield (annual)RSH1.10%
0.70%
2 / 10
Trend Analysis
The figure below compares Best Buy returns to S&P 500 returns over the past five years.
Earnings estimates as given by analysts from finance.yahoo.com
Earnings EstCurrent Qtr Nov-05
Next Qtr Feb-06
Current Year Feb-06
Next Year Feb-07
Avg. Estimate
0.30
1.16
2.17
2.55
No. of Analysts
22
24
24
27
Low Estimate
0.28
1.11
2.11
2.35
High Estimate
0.32
1.23
2.25
2.80
Year Ago EPS
0.30
1.03
1.91
2.17
Revenue EstCurrent Qtr Nov-05
Next Qtr Feb-06
Current Year Feb-06
Next Year Feb-07
Avg. Estimate
7.35B
10.24B
30.29B
33.77B
No. of Analysts
14
14
20
19
Low Estimate
7.25B
10.15B
26.91B
33.14B
High Estimate
7.43B
10.40B
31.81B
36.00B
Year Ago Sales
6.65B
N/A
N/A
30.29B
Sales Growth (year/est)
10.6%
N/A
N/A
11.5%
Earnings HistoryNov-04
Feb-05
May-05
Aug-05
EPS Est
0.29
1.03
0.20
0.38
EPS Actual
0.30
1.03
0.34
0.37
Difference
0.01
0.00
0.14
-0.01
Surprise %
3.4%
0.0%
70.0%
-2.6%
EPS TrendsCurrent Qtr Nov-05
Next Qtr Feb-06
Current Year Feb-06
Next Year Feb-07
Current Estimate
0.30
1.16
2.17
2.55
7 Days Ago
0.30
1.16
2.17
2.55
30 Days Ago
0.31
1.16
2.18
2.55
60 Days Ago
0.33
1.18
2.23
2.56
90 Days Ago
0.33
1.17
2.21
2.54
EPS RevisionsCurrent Qtr Nov-05
Next Qtr Feb-06
Current Year Feb-06
Next Year Feb-07
Up Last 7 Days
0
0
0
0
Up Last 30 Days
0
1
0
0
Down Last 30 Days
2
1
2
0
Down Last 90 Days
12
2
12
2
Growth EstBBY
Industry
Current Qtr.
0.0%
14.1%
Next Qtr.
12.6%
14.4%
This Year
13.6%
12.9%
Next Year
17.5%
15.8%
Past 5 Years (per annum)
19.8%
N/A
Next 5 Years (per annum)
16.0%
14.57%
Price/Earnings (avg. for comparison categories)
18.6
18.78
PEG Ratio (avg. for comparison categories)
1.16
1.29
Key Financial information regarding Best Buy stockPrice: 43.88
EPS: 2.14
Beta: 2.32R squared: 0.4346
P/E Ratio: 19.16
PEG Ratio: 1.12
ROE:
24.41 (ttm)
Price/Book:
4.27
Div/Yield: 0.32 (0.8%)
Quarterly Earnings growth: 25.3%
Market Cap: $20.0 Billion
52 wk Range: 31.93-53.17
1 yr target: $53.97
Mean Analyst Rating: 2.1 (Buy)
Other financial information
ROA: 10.43
Revenue: $28.69 Billion
EBITDA: $2.05 Billion
Net Income: $1.03 Billion
Debt to Equity: 0.114
Current Ratio: 1.515
Cash on hand: $175 Million
Profit Margin: 3.76%
Operating Margin: 5.5%
Analysis of RiskOne point of concern regarding these figures is the stocks beta. 2.32 is much higher than the portfolio average, however this would be a good stock to hold in combination with Costco, which has a very low beta. Much of the fluctuation in the stock price can be explained by seasonality alone and is not caused by any real decrease in value of the stock. To be said of the other figures, most areas of Best Buys financial performance look very solid. The stock price is close to the middle of the 52 week range and looks to be headed in the upward direction very soon as Christmas buying season approaches. The P/E ratio is reasonable and the stock looks to be somewhat undervalued. ROE is excellent, as well as quarterly earnings growth, both of which are important to take into consideration.
Best Buys index membership includes the Standard and Poors 500 as well as the S&P 1500. The trading location for Best Buy stock is the New York Stock Exchange. The average trading volume as of 11/1/2005 is 5,307,570. The risk of Best Buy stock is fairly well limited to within the 52 week range of the stock price. The 52 week change in price is 15.19%. Standard deviation is 7.41. Risk in the securities investments that Best Buy undertakes is nonexistent as they invest only in government bonds and do no speculative investing. Best Buys correlation to the market is R squared = 0.4346. This is a relatively loose correlation and exhibits the fact that Best Buy does not necessarily move as the market moves. Fundamental ValuationThese figures were calculated using a risk free rate of 4.75% as has been previously used throughout the class. The portfolio expected return was established to be 8.87% on Oct 27th; this is the rate used in the following computations. A beta of 2.32 was used. This beta figure is the average of three analysts estimates (advfn.com B=2.42, bestbuy.com B=2.12, MSN.com B=2.42).Required rate of return = .0475+2.32[.087-.0475] = 13.91%
The required rate of return on this stock is so high because of the beta value. By looking at the beta alone, this stock seems to be fairly risky. However other factors taken into consideration have shown that the stock is not quite as risky and may even deserve a lower beta value. Reuters.com rates this stock as having low risk. Dividend Discount Model
V=D1/(k-g) V=.42/(.1391-.2041) = -6.46g= (1-.164)*24.41 = 20.41% Payout ratio = 16.4%
The dividend discount model is not an accurate valuation tool for Best Buy as, growth estimates exceed required rate of return estimates.
P/E Model
P/E Ratio * EPS
19.16*2.14 = 41.00The P/E valuation method gives a reasonably accurate measure of the stocks actual worth. Todays price shows that the stock may be slightly overvalued. The causes for this can be attributed to prevailing market conditions. While according to this valuation technique the stock appears over valued, the growth that Best Buy is currently experiencing, still makes this stock a good buy. Other considerationsOn April 27, 2005 the Best Buy board of directors authorized a $1.5 billion stock repurchase plan. The stock will be purchased from the open market from time to time when market conditions are acceptable.
In other corporate news, Best Buy is planning to open 20-50 stand alone Geek Squad locations in urban areas throughout the United States over the next 18 months. This will expand on the Geek Squad and Best Buy name and become a new profit center.
Institutional Following
TOP INSTITUTIONAL HOLDERS
Holder
Shares
% Out
Value*
Reported
GROWTH FUND OF AMERICA INC
23,663,403
4.81
$1,622,126,275
30-Jun-05
INVESTMENT COMPANY OF AMERICA
15,792,302
3.21
$1,082,562,302
30-Jun-05
WASHINGTON MUTUAL INVESTORS FUND
10,425,001
2.12
$714,633,818
30-Jun-05
AMCAP FUND
8,250,001
1.68
$565,537,568
30-Jun-05
AMERICAN FDS INSURANCE SER-GROWTH/INCOME FD
4,875,001
.99
$334,181,318
30-Jun-05
VANGUARD 500 INDEX FUND
4,271,035
.87
$292,779,449
30-Jun-05
PUTNAM VOYAGER FUND
4,092,451
.83
$206,013,983
30-Apr-05
PRICE (T.ROWE) MID CAP GROWTH FUND
3,750,001
.76
$257,062,568
30-Jun-05
CAPITAL WORLD GROWTH AND INCOME FUND
3,648,000
.74
$250,070,400
30-Jun-05
COLLEGE RETIREMENT EQUITIES FUND-STOCK ACCOUNT
3,431,388
.70
$185,329,265
31-Mar-05
TOP MUTUAL FUND HOLDERS
Holder
Shares
% Out
Value*
Reported
BARCLAYS BANK PLC
16,547,928
3.36
$1,134,360,464
30-Jun-05
GOLDMAN SACHS GROUP INC
13,418,053
2.72
$919,807,533
30-Jun-05
PUTNAM INVESTMENT MANAGEMENT, LLC
11,937,437
2.42
$818,311,306
30-Jun-05
STATE STREET CORPORATION
11,787,597
2.39
$808,039,774
30-Jun-05
FMR CORPORATION (FIDELITY MANAGEMENT & RESEARCH CORP)
11,305,362
2.30
$774,982,565
30-Jun-05
PRICE (T.ROWE) ASSOCIATES
10,905,463
2.21
$747,569,488
30-Jun-05
VANGUARD GROUP, INC. (THE)
10,109,722
2.05
$693,021,443
30-Jun-05
CAPITAL RESEARCH AND MANAGEMENT COMPANY
78,727,810
15.99
$5,396,791,375
30-Jun-05
JANUS CAPITAL MANAGEMENT, LLC
9,141,238
1.86
$626,631,864
30-Jun-05
SHAW D.E. & CO., INC.
8,686,951
1.76
$595,490,491
30-Jun-05
Major holders
% of Shares Held by All Insider and 5% Owners:
16%
% of Shares Held by Institutional & Mutual Fund Owners:
75%
% of Float Held by Institutional & Mutual Fund Owners:
90%
Number of Institutions Holding Shares:
562
Holder
Shares
ANDERSON, BRADBURY H.
1,232,355
LENZMEIER, ALLEN U.
1,118,056
SCHULZE, RICHARD M.
481,929
KAPLAN, ELLIOT S.
144,398
TRESTMAN, FRANK D.
62,250
Just over 75% of Best Buy stock is held by institutional investors and mutual funds. In all there are 562 institutions that currently own Best Buy. Those listed above are the top ten. Another 16% is held by insiders, which shows that they believe in the company and its growth potential.
The mean analyst rating for Best Buy is 2.1, down from 2.2 in mid October. 19 analysts opinions were taken into consideration for this rating.
Conclusions
My recommendation for Best Buy is to buy. Holding Best Buy in our portfolio will result in excellent returns, as has been demonstrated by past performance and growth potential. While Best Buy has a higher beta than that of the portfolio and may increase overall risk according to this measure, if it were to be held in combination with Costco or another big box retailer with a low beta, some of this risk will be diversified and the returns from Best Buy can still be realized. With the Christmas buying season approaching, now is the time to move. This is the ideal time to purchase and conditions are favorable to do so. Since I have begun analyzing this stock it has increase in value by over $3.00 per share. It is crucial for Best Buy to have a successful Christmas season, as it contributes a large portion of revenue and profit. Again, my recommendation is to Buy.Sources Cited
-Best Buy Annual Report
-finance.yahoo.com
-www.advfn.com
-www.bestbuy.com
-www.moneycentral.msn.com
-www.reuters.com
AppendixThe following figures and charts were taken from Best Buys annual report and finance.yahoo.com. They illustrate information that may be useful to investors in deciding whether to invest in Best Buy.
Best Buy Corp.
NYSE: BBY
Last updated: Nov. 1, 2005
Recommendation
BUY
Pricing
Current Price$44.20
52-Week High$53.17
52-Week Low$31.93
Profitability & Effectiveness
ROA10.17%
ROE 24.41%
Profit Margin 3.76%
Market Data
Total Assets (M) 10,294 Volume 3,506,000
Market Cap (B) 21.93
Avg. Vol. 5,337,490
EPS (TTM) 2.14
P/E (TTM) 21.33
Forward P/E 17.78
Div Yield 0.7%
Beta 2.32
Brian Knapp