Stock Analysis on Net
Stock Analysis on Net

Best Buy Co. Inc. (NYSE:BBY)

This company has been moved to the archive! The financial data has not been updated since December 6, 2022.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Best Buy Co. Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 16.73%
01 FCFF0 2,533
1 FCFF1 2,975 = 2,533 × (1 + 17.45%) 2,548
2 FCFF2 3,389 = 2,975 × (1 + 13.94%) 2,488
3 FCFF3 3,743 = 3,389 × (1 + 10.43%) 2,353
4 FCFF4 4,002 = 3,743 × (1 + 6.92%) 2,156
5 FCFF5 4,139 = 4,002 × (1 + 3.41%) 1,910
5 Terminal value (TV5) 32,146 = 4,139 × (1 + 3.41%) ÷ (16.73% – 3.41%) 14,832
Intrinsic value of Best Buy Co. Inc. capital 26,287
Less: Total debt (fair value) 1,245
Intrinsic value of Best Buy Co. Inc. common stock 25,042
 
Intrinsic value of Best Buy Co. Inc. common stock (per share) $113.18
Current share price $83.28

Based on: 10-K (reporting date: 2022-01-29).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Best Buy Co. Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 18,427 0.94 17.71%
Total debt (fair value) 1,245 0.06 2.18% = 3.02% × (1 – 27.82%)

Based on: 10-K (reporting date: 2022-01-29).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 221,264,454 × $83.28
= $18,426,903,729.12

   Total debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (19.00% + 24.30% + 22.70% + 22.40% + 45.00% + 33.50%) ÷ 6
= 27.82%

WACC = 16.73%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Best Buy Co. Inc., PRAT model

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Average Jan 29, 2022 Jan 30, 2021 Feb 1, 2020 Feb 2, 2019 Feb 3, 2018 Jan 28, 2017
Selected Financial Data (US$ in millions)
Interest expense 25 52 64 73 75 72
Gain from discontinued operations, net of tax — — — — 1 21
Net earnings 2,454 1,798 1,541 1,464 1,000 1,228
 
Effective income tax rate (EITR)1 19.00% 24.30% 22.70% 22.40% 45.00% 33.50%
 
Interest expense, after tax2 20 39 49 57 41 48
Add: Common stock dividends 688 568 527 491 411 505
Interest expense (after tax) and dividends 708 607 576 548 452 553
 
EBIT(1 – EITR)3 2,474 1,837 1,590 1,521 1,040 1,255
 
Short-term debt — 110 — — — —
Current portion of long-term debt 13 14 14 56 544 44
Long-term debt, excluding current portion 1,216 1,253 1,257 1,332 811 1,321
Total Best Buy Co., Inc. shareholders’ equity 3,020 4,587 3,479 3,306 3,612 4,709
Total capital 4,249 5,964 4,750 4,694 4,967 6,074
Financial Ratios
Retention rate (RR)4 0.71 0.67 0.64 0.64 0.57 0.56
Return on invested capital (ROIC)5 58.23% 30.81% 33.48% 32.40% 20.94% 20.66%
Averages
RR 0.63
ROIC 27.66%
 
FCFF growth rate (g)6 17.45%

Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).

1 See details »

2022 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 25 × (1 – 19.00%)
= 20

3 EBIT(1 – EITR) = Net earnings – Gain from discontinued operations, net of tax + Interest expense, after tax
= 2,454 – 0 + 20
= 2,474

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,474 – 708] ÷ 2,474
= 0.71

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,474 ÷ 4,249
= 58.23%

6 g = RR × ROIC
= 0.63 × 27.66%
= 17.45%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (19,672 × 16.73% – 2,533) ÷ (19,672 + 2,533)
= 3.41%

where:

Total capital, fair value0 = current fair value of Best Buy Co. Inc. debt and equity (US$ in millions)
FCFF0 = the last year Best Buy Co. Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Best Buy Co. Inc. capital

FCFF growth rate (g) forecast

Best Buy Co. Inc., H-model

Microsoft Excel
Year Value gt
1 g1 17.45%
2 g2 13.94%
3 g3 10.43%
4 g4 6.92%
5 and thereafter g5 3.41%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 17.45% + (3.41% – 17.45%) × (2 – 1) ÷ (5 – 1)
= 13.94%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 17.45% + (3.41% – 17.45%) × (3 – 1) ÷ (5 – 1)
= 10.43%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 17.45% + (3.41% – 17.45%) × (4 – 1) ÷ (5 – 1)
= 6.92%