No. of Recommendations: 1

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.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.