Dealbreaker posted the 1Q11 letter to shareholders from David Einhorn’s Greenlight Capital. The hedge fund went long Best Buy (NYSE: BBY) last quarter – here’s why:
Best Buy Inc. (BBY) operates consumer electronics stores in the U.S., Canada, Mexico, Europe and China. The market is concerned that BBY has reached its growth limits within the U.S. and faces declining video, laptop and television sales going forward. We believe that much of BBY’s recent problems were due to last year being a soft-goods holiday season that was particularly poor for televisions. Over the years we have seen many retailers given up for dead after a weak holiday result, only to recover with a change in fashion or product cycle. Bears believe that the internet puts BBY on a path to Blockbuster-video obsolescence. We think that view overstates the risk as there is value in store help, merchandising, service and being able to walk out of the store with your purchase.
While BBY’s big box stores in the U.S. are mature (and, in fact, BBY will reduce its footage by a couple percent per year), we believe that BBY has more than offsetting growth opportunities in its Best Buy Mobile concept, international retail, and through additional higher-margin services offerings. In addition, the company currently has minimal leverage and between earnings and working capital improvements should generate almost a 20% free cash flow yield this year. BBY has targeted $1.3 billion of share repurchases this fiscal year, which is approximately 10% of its current market capitalization. The Partnerships established their position at an average price of $33.33 per share, representing a multiple of approximately 10x expected calendar 2011 earnings and less than 8x our estimate of 2012 earnings. BBY stock ended the quarter at $28.72 per share.
Based upon the price drop since our acquisition, this has not yet proven to be a good buy.
The following Covestor model is currently (as of 5/2/11) long BBY:
- Long-Short Generalist from BTC Impex
Source:
Greenlight Capital letter to shareholders, April 29, 2011
http://dealbreaker.com/2011/05/greenlight-capital-not-unlike-the-way-charlie-sheen-must-feel-99-9-of-the-time-last-quarter-left-us-a-bit-confuzzled/greenlight-capital-q1-letter/
