Morningstar | Corie Barry's CEO Appointment Keeps Best Buy on Right Track, May Open New Partnership Opportunities
We don't anticipate material changes in no-moat Best Buy's strategic priorities or our Standard equity stewardship rating following its April 15 succession planning announcements, including the transition of CEO Hubert Joly to executive chairman, the appointment of CFO and Strategic Transformation Officer Corie Barry to CEO, and the promotion of U.S. Chief Operating Officer Mike Mohan to president and COO following its June 11 shareholder meeting. Since joining the company in 2012, Joly has been the architect behind many of the retailer's initiatives, including enhancing its multichannel customer experience, store-within-store partnerships, optimizing its U.S. real estate portfolio, and enhancing supply-chain efficiencies. However, in more recent years, Barry has taken on a more active role with its services offerings--including Total Tech Support and GreatCall--and we believe the company will continue to explore new service-based partnerships under her leadership. With Joly moving to executive chairman and supporting Barry on "key matters, such as strategy, capability building, M&A and external relationships," we expect a seamless transition.We're not planning changes to our $62 fair value estimate based on the succession plan, though we plan to revisit our assumptions as Barry and the new leadership team refine their longer-term financial targets (which likely won't be completed until the search for a new CFO is concluded). We see shares as overvalued but still a solid income play with a $3 billion share buyback authorization. We continue to view management's outlook for fiscal 2020 as realistic, including $42.9 billion to $43.9 billion in revenue, flat enterprise operating margins of 4.6%, and adjusted EPS of $5.45-$5.65 appears reasonable. However, with expectations of industry pricing pressures, extended mobile phone replacement cycles, and potentially new sources of competition for services, we see fewer opportunities for upside surprises this year.
Best Buy provides computing and mobile phones, consumer electronics, appliances, entertainment, services and other products. The company operates two reportable segments: Domestic, which is comprised of the operations in all states, districts and territories of the U.S. under various brand names including Best Buy, bestbuy.com, Best Buy Direct, Best Buy Express, Best Buy Mobile, Geek Squad, GreatCall, Magnolia and Pacific Kitchen and Home; and International, which is comprised of all operations in Canada and Mexico under the brand names Best Buy, Best Buy Express, Best Buy Mobile, Geek Squad and the domain names bestbuy.ca and bestbuy.com.mx.
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