Best Buy Co., Inc.BBYNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $226.74 per share(market-calibrated)

+268.1%

Upside to Fair Value

Current

$61.59

Pure Model

$236.12

Fair Value

$226.74

Bull Case

$285.39

Bear Case

$189.10

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

0.50%

Calibrated Growth

2.13%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $236.12.

What's Driving This Ratingfor BBY

✓

CapEx already efficient

CapEx at 1.87% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 4.41% — below the sector mature average of 12.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $4.9B (9.51% margin).

→

Moderate revenue growth

Analyst consensus projects 0.57% revenue growth, fading to 3.00% by Year 10. Revenue reaches $52.0B (vs $41.5B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $178.61/share (18.4x terminal FCF) while exit multiple gives $293.62/share (34.5x terminal FCF). The 20x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 250bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.

→

Moderate cash flow conversion

Year 10 FCF/EBITDA conversion is 58.03% — acceptable but leaves room for improvement. High reinvestment needs consume a meaningful portion of operating cash flow.

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.44

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)11.00%

Cost of Debt

Pre-tax Cost of Debt1.06%

Tax Rate28.64%

After-tax Cost of Debt0.76%

Equity Weight (E/V)76.58%

Debt Weight (D/V)23.42%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (76.58% × 11.00%) + (23.42% × 0.76%)

= 8.60%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$41.8B	$42.9B	$45.3B	$47.8B	$52.0B
EBIT	$1.8B	$1.9B	$2.0B	$3.4B	$4.9B
Tax	$528M	$542M	$572M	$977M	$1.4B
NOPAT	$1.3B	$1.3B	$1.4B	$2.4B	$3.5B
+ Depreciation	$888M	$912M	$963M	$1.0B	$1.1B
- Capex	$781M	$801M	$847M	$893M	$972M
- Δ NWC	$24M	$68M	$111M	$126M	$152M
Free Cash Flow	$1.4B	$1.4B	$1.4B	$2.4B	$3.5B
Discount Factor	0.921	0.781	0.662	0.561	0.438
Present Value	$1.3B	$1.1B	$948M	$1.4B	$1.5B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$3.5B

Terminal Growth Rate3.00%

WACC8.60%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$64.6B

PV of Terminal Value$28.3B

Exit Multiple Method

Year 10 EBITDA$6.1B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$121.1B

PV of Terminal Value$53.1B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$12.6B

PV of Terminal Value$28.3B

Enterprise Value$40.9B

(-) Net Debt$2.5B

Equity Value$38.4B

Shares Outstanding215M

Price per Share$178.61

Exit Multiple Method

PV of Projected FCFs$12.6B

PV of Terminal Value$53.1B

Enterprise Value$65.7B

(-) Net Debt$2.5B

Equity Value$63.2B

Shares Outstanding215M

Price per Share$293.62

Pure Model Fair Value

$236.12

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
6.60%	$297.82	$310.00	$325.57	$346.15	$374.66
7.60%	$257.00	$264.40	$273.40	$284.60	$298.91
8.60%	$225.60	$230.43	$236.12	$242.92	$251.20
9.60%	$200.30	$203.62	$207.43	$211.88	$217.12
10.60%	$179.28	$181.64	$184.32	$187.38	$190.90

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$189.10

207.0% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.80

Base Case

$236.12

283.4% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.44

Bull Case

$285.39

363.4% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 1.23

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Consumer Cyclical Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth0.57%

Year 3 Revenue Growth1.61%

Year 5 Revenue Growth2.51%

Year 7 Revenue Growth2.71%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin4.41%

Terminal EBIT Margin12.00%

Tax Rate28.64%

Historical Capex / Rev1.87%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 20x EV/EBITDA (Consumer Cyclical sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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