No. of Recommendations: 1
Maybe.

The latest 10-Q is not out yet, so the latest FCF numbers aren't available. However, using ttm FCF ending 8/28/10 of $1,405 million, the breakdown is 7.7% / 3.9% / 0% at a 15% discount rate (hurdle) for Thursday's closing price of $34.35. Note, that also uses 397.1 million shares and I'm pretty sure management's been buying back shares, too, which isn't reflected in the above.

I don't know what the latest FCF numbers are as they weren't in the release and management didn't mention cash flow at all in the conference call, so I can't give the most recent expectations.

Historically, using the above $1,405 million, the 3-year CAGR is 7.8% and 5-year is 6.3%. Given those numbers, it seems that the market is pricing in reasonable expectations.

Of course if you want to use a lower hurdle rate, the priced-in growth expectations are quite a bit lower. 13.5% hurdle gives a 5.4% / 2.7% / 0% pattern, while 12% gives a 2.9% / 1.5% / 0% pattern.

But, using my 15% hurdle, I would pass on Best Buy as a MUE candidate, unless free cash flow was significantly higher and share count was significantly lower in the most recent ttm period than $1.4 billion and 397.1 million, respectively.

Note, this conclusion doesn't necessarily mean that Tom E is wrong, just that MUE wouldn't consider it at the current price.

Cheers,
Jim
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