Bloomberg: Best Buy’s Ridiculous Valuation Invites LBO ($BBY)

I wrote about Best Buy (NYSE: BBY) here, noting the company’s strong free cash flows and shareholder friendly track record. Today Bloomberg ran an article about how cheap BBY has become and the potential for an LBO:

For private equity buyers looking for a retailer that throws off the most cash, there’s no bigger bargain than Best Buy (BBY) Co.

After losing almost a third of its market value in 2011, the world’s largest seller of consumer electronics was valued at just 3.6 times its free cash flow (BBY), the cheapest of any retailer worth more than $1 billion, according to data compiled by Bloomberg. Best Buy, one of the five worst-performing (S5RETL) retail stocks in the Standard & Poor’s 500 Index last year, also reached its cheapest valuation relative to earnings. …

The $8.21 billion company could get at least $37 a share in a takeover, according to Thornburg Investment Management, 59 percent more than its price yesterday.

“Now would be the time, if I were private equity, to be dusting this off,”Joe Feldman, a New York-based analyst at Telsey, said in a telephone interview. “They generate a ton of free cash. From a valuation standpoint, it does look like an attractive candidate for a takeout.” …

Best Buy’s slump may now attract private equity funds because it still produces more free cash than any comparable retailer and has more cash than debt (BBY), according to R.J. Hottovy, director of consumer research at Chicago-based Morningstar.

Read the full article here.

What do you think? 


Author Disclosure: Long BBY

Talk to Frank about Best Buy