Best Buybacks

27 Jun

Best Buy (BBY) today announced a 30% boost to its quarterly dividend and a $5.5 billion buyback program (replacing its previous $1.5B program), $3.0 billion of which will be done immediately. This should reduce share count by over 13% at today’s prices, giving shareowners who hold on a bigger piece of the pie. Given the company’s cash-generating ability (a roughly 5% free cash flow yield after capital expenditures needed to maintain and expand the business are subtracted) and the currently undervalued state of its shares, I think this is a great use for the company’s cash and view this as a shareholder-friendly move as long as buybacks occur at sensible prices.

More good news was announced: management now targets 1,800 stores in the U.S. and Canada (up from 1,400), which represents a near doubling of its store base domestically. Assuming returns on invested capital can be maintained even with such a sizeable store base, Best Buy – the company and its stock – continues to look attractive at current levels (though I certainly wouldn’t mind if they went lower in the short term).

Full disclosure: Long BBY shares.

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