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"Our LBO model shows that on a paper a deal is feasible at a price in the high $30 range, but, for the reasons listed below, we think a deal is unlikely: 1) Market share losses and increased competition would make it difficult for a buyer to stabilize comps and margins. Comps have fallen 2 years in a row and margins fell 50 bps last year. 2) The chairman Richard Schulze owns just under 20% and may be an unlikely seller. 3) At a high $30 range, the deal would require nearly $11b in debt and $5b in equity, bigger than recent LBO's in the space, which would make it difficult," Deutsche Bank analysts wrote in an April 18 report.
Shares of Best Buy hit a 52-week low on Monday of $21.31. The stock's 52-week high of $32.85 was set on June 21.
Best Buy is trying to cut costs to the tune of $800 million by
fiscal year 2015 through layoffs and store closures. The retailer announced earlier this month the location of
50 store closings.
The company's board is looking for a
new CEO following Brian Dunn's
resignation earlier this month due to
"personal conduct" issues.
Best Buy trades at an estimated price-to-earnings ratio for next year of 5.78 times; the average for specialty retailers is 15.84. For comparison,
GameStop(GME) has a higher forward P/E of 6.46.
Twenty of the 29 analysts who cover Best Buy rated it hold. Five analysts gave the stock a buy rating and four rated it sell.
TheStreet Ratings gives Best Buy a
C grade and hold rating. The stock has fallen 6.68% year to date.