In what I think is a clear attempt to stave off shareholders' fears about weaker consumer spending and the competition David described in his Bear argument, Best Buy
"Baby Got Buyback": This $5.5 billion buyback is no chump change, especially considering that more than half of it will be spent by February. However, with a billion in cash flow available for financial activities, roughly $2.6 billion in short-term investments, and a $2 billion credit facility, the company has the financial flexibility to pay that multibillion-dollar tab.
Assuming an average purchase price of $50 per share, Best Buy will reduce the outstanding share count by 60 million, or 12.5%, in less than a year. That means earnings per share should rise 20%-25% by the end of 2008.
"Dividend Jump, Jump": Most individual investors won't notice the 30% dividend increase to $0.52, but it is worth noting that Best Buy is establishing a pattern of increasing its dividend every year.
"400 Billion Bottles Washed Up on the Shore": OK, I am curious about the seemingly arbitrary decision that North America can suddenly support 400 more stores than previously thought. Granted, with 1,035 existing stores, the new goal of 1,800 stores represents less than 80% total growth. Even though I'm the Bull, I'll still keep a watchful eye for signs of market oversaturation.
Concerning the competitive landscape, David makes a good point. Wal-Mart
While free cash flow has declined, this is primarily because of steadily increasing capital expenditures over the last three years. Meanwhile, when it comes to expansion into China, I'm personally more comfortable with the conservative approach that allows Best Buy to make mistakes and iron out wrinkles on a small scale, creating a successful model for duplicating across the country.
While regional chains like Conn's Inc
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