The document analyzes Best Buy's (BBY) valuation and provides a recommendation. It summarizes that: 1. BBY's "Renew Blue" turnaround strategy aims to balance cost leadership with differentiation, but this is paradoxical and difficult to achieve. 2. Financial valuations using the EVA, FCFU, and FCFCE models indicate that BBY is overvalued at its current stock price. 3. Sensitivity analysis shows that even with optimistic growth rate assumptions, the maximum forecast price is below the current stock price, reinforcing the assessment that BBY is overvalued given challenges with its business strategy.

1. BBY Valuation
MMS analysts: Austin Taylor, Yunning (Emma) Zhang, Jingduo Bi, Nian Liu

2. Executive Summary
We recommend against buying the BestBuy because
of the following reasons:
1. The turnaround strategy is a paradox.
2. The financial valuations indicate that the
company is overvalued.

3. Agenda
• Business Strategy
• Key Forecast Assumptions
• Valuations
• Sensitivity Analysis
• Recommendation
• Q&A

4. Business Strategy
Current Strategy:
Cost Leadership
Turnaround Strategy
(“Renew Blue”*)
Cost Leadership
- More price
competitive
- Focus on core business
activities
- Shut down
unprofitable stores
- Employee termination
Differentiation
- Better customer’s
physical experience
- More customer-facing
labor
- Train store associates
- Upgrade stores
Competitive Advantages?
Hard to balance between cost competitive and cost
increased by differentiation **.
Trend
Sources: * BBY 2015 financial report. ** http://www.businessinsider.com/best-buys-strategy-is-a-paradox-2014-

5. Risk Analysis
• Strong competition from traditional store based
retailers, multi-channel retailers, internet-based
business.
• Failure to effectively manage cost.
• Hard to attract qualified employees in key positions
especially under a cost reduction strategy.
• Change in credit ratings may limit capital access and
borrowing cost.

6. Key Forecast Assumptions
Key Forecast Assumptions Value Source
2016 Revenue Growth Rate -0.24% Yahoo Finance, Bloomberg…
2017-2020 Revenue Growth Rate 6.04% Thomson one, Yahoo Finance
Thereafter Revenue Growth Rate 2.00% U.S GDP growth rate
COGS in next three years -400 millions Letter to shareholders
Restructuring Charge in 2016 100 millions BBC news
Short Term Investments in 2016, 2017 150 millions BBC news

7. Valuation
Best Buy Co Inc
NYSE: BBY - May 1
35.18
EVA
MultipleFCFCE
FCFU

8. Capital Structure & WACC
rf 2.25% rd 4.925%
rm-rf 7.10%Short term borrowings 0
Beta 1.85 Long term debt 1484
rE(CAPM) 15.41% Total on B/S debt 1484
Shares outstanding 351,468,000 Oper. lease debt 3111
Obs. Price, 5/01/2015 35.18 Combined Debt 4595
Market value equity 12,364,644,240
Market value equity (in miilions) 12365
Enterprise Value 16959
wE 72.91%
wD 27.09%
Tax rate (Notes 10) 35.80%
Rwacc 12%
Equity Debt
Operating Asset View with Operating Lease

9. EVA Valuation
Best Buy Co Inc
NYSE: BBY - May 1
35.18
33.38 Overvalued

10. FCFU Valuation
Best Buy Co Inc
NYSE: BBY - May 1
35.18
26.58 Overvalued

11. FCFCE Valuation
Best Buy Co Inc
NYSE: BBY - May 1
35.18
27.79 Overvalued

12. Multiple Valuation
Best Buy Co Inc
NYSE: BBY - May 1
35.18
54.72 47.47
However, we don’t think these
companies are very comparable to
BestBuy because Wal-Mart sells
more diverse products, Apple sells
products made by itself and Staples is
operating in a different industry.
EV/Sales Mutiple EV/EBITDA Multiple
Sales Revenue 40,339.00$ 1,387.00$
Ent Val Multiple 0.51 13.08
Enterprise Value 20,757.42$ 18,140.24$
-NonControlling Int - -
-Current Liabilities Debt 41.00$ 41.00$
-Long Term Debt 1,484.00$ 1,484.00$
-Preferred Shares -$ -$
Equity Value 19,232.42$ 16,615.24$
Shares Outstanding 351,468,000 351,468,000
Intrinsic Share Price 54.72$ 47.27$
Best Buy - Projected Value
Key Ratios Best Buy Apple Wal-Mart Staples
Profit Margin 22.43% 38.59% 24.83% 25.79%
ROA 7.36% 17.04% 8.03% 1.30%
ROE 22.46% 35.42% 20.10% 2.54%
P/E 10.54 15.64 15.64 78.43
Asset Turnover 2.64 0.79 2.38 2.18
Financial Leverage 3.05 2.08 2.50 1.94
Sales to NI Efficiency 2.78% 21.61% 3.37% 0.60%

13. Valuation Summary
EVA 33.38 Overvalued
FCFU 26.58 Overvalued
FCFCE 27.79 Overvalued
Best Buy Co Inc
NYSE: BBY - May 1
35.18

14. Sensitivity Analysis
How will growth rate
change valuation
results?
Not too much!

15. Conclusion
The table above is the range of BBY valuation. As it shows, the
maximum forecast price is $34.95, which still less than the current
stock price. Combined with its self-conflict business strategy, we
think BBY is overvalued.

17. THANK YOU!