Best Buy Co Inc (NYSE:BBY) stock isn’t the sexiest thing on Wall Street, but it has done a fine job of pleasing its investors over the past year. Today brought more of the same, as BBY stock ticked up in early trading after beating earnings estimates, raising its dividend, issuing a one-time special dividend, and announcing a $1 billion buyback program.
Shares of the world’s largest consumer electronics retailer returned 51% in the past 12 months before today’s early gains, trumping the S&P 500 (INDEXSP:.INX) by 34 percentage points.
While BBY still faces some major obstacles before looking like a best-in-class stock, its valuation relative to the broader stock market and its insistence upon returning cash to shareholders make Best Buy — believe it or not — a value stock.
Best Buy Co Inc Staring Down Competitive Industry
Amazon.com, Inc. (NASDAQ:AMZN) has been the biggest thorn in Best Buy’s side for a number of years now. With the increasing ubiquity of e-commerce, many of the commoditized electronics products BBY sells are available with the click of a button. AMZN is largely responsible for driving RadioShack Corporation (OTCMKTS:RSHCQ) into bankruptcy; Circuit City befell a similar fate in 2008.
And with Wal-Mart Stores, Inc. (NYSE:WMT) being the brick-and-mortar retail giant that it is, BBY has to scrap for every penny it makes.
Quarterly Results and Valuation
Thankfully for the BBY stock price, that’s exactly what Best Buy did in the fourth quarter. Driven by sales of higher-margin products like TVs and smartphones and a continuation of CEO Hubert Joly’s cost-cutting initiatives, Best Buy’s earnings per share came in well above expectations.
Adjusted EPS came in at $1.48 in the fourth quarter, easily topping Wall Street’s calls for $1.35 per share, and a meteoric, 78% rise from the 83 cents per share it earned in 4Q 2013. It marked the ninth straight quarter that BBY earnings beat estimates.
The Best Buy dividend also rose by 21% to 23 cents, giving BBY stock a dividend yield of about 2.4% at yesterday’s closing price. As a bonus, the electronics retailer issued a special dividend of 51 cents per share. (Shareholders shouldn’t expect that one again — the cash came from one-time gains in relation to a price-fixing lawsuit.)
Oh yeah, the company also approved a plan to buy back $1 billion of BBY stock over the next three years.
With all the jolly news today, one wonders why the BBY stock price isn’t higher. Sure WMT and AMZN are fierce competitors, and BBY will be hard-pressed to increase sales anytime in the near future. But it’s becoming more efficient, aiming to cut $400 million in operating expenses over the next three years.
BBY is focusing on its strengths, too. In December, Best Buy divested from Five Star, a Chinese retail chain, in order to focus on its core North American operations.
These improvements, of course, would all be irrelevant if the BBY stock price was unreasonably high. At current levels, however, that’s just not the case — BBY trades at less than 14 times earnings, or nearly a 30% discount to the S&P 500’s multiple of 19.
With the Best Buy dividend now sitting at an S&P-beating 2.3% yield as well, I consider BBY a value stock in today’s frothy market.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
