Best Buy Co., Inc.BBYNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $233.60 per share(market-calibrated)

+247.5%

Upside to Fair Value

Current

$67.22

Pure Model

$243.14

Fair Value

$233.60

Bull Case

$295.63

Bear Case

$193.25

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: $243.14.

What's Driving This Ratingfor BBY

✓

CapEx already efficient

CapEx at 1.86% 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 4.08% — below the sector mature average of 12.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $5.0B (9.40% margin).

→

Moderate revenue growth

Analyst consensus projects 0.18% revenue growth, fading to 3.00% by Year 10. Revenue reaches $53.3B (vs $41.7B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $186.64/share (17.8x terminal FCF) while exit multiple gives $299.64/share (32.4x 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.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 61.75% indicates efficient cash generation. FCF reaches $3.8B by Year 10 (7.11% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.47

Market Risk Premium4.50%

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

Cost of Equity (Re)11.13%

Cost of Debt

Pre-tax Cost of Debt1.02%

Tax Rate24.00%

After-tax Cost of Debt0.77%

Equity Weight (E/V)77.44%

Debt Weight (D/V)22.56%

WACC Calculation

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

WACC = (77.44% × 11.13%) + (22.56% × 0.77%)

= 8.79%

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	$42.6B	$45.3B	$48.6B	$53.3B
EBIT	$1.7B	$1.7B	$1.8B	$3.4B	$5.0B
Tax	$409M	$417M	$444M	$808M	$1.2B
NOPAT	$1.3B	$1.3B	$1.4B	$2.6B	$3.8B
+ Depreciation	$883M	$900M	$958M	$1.0B	$1.1B
- Capex	$776M	$791M	$842M	$902M	$990M
- Δ NWC	$7M	$62M	$164M	$162M	$155M
Free Cash Flow	$1.4B	$1.4B	$1.4B	$2.5B	$3.8B
Discount Factor	0.919	0.777	0.656	0.554	0.431
Present Value	$1.3B	$1.1B	$890M	$1.4B	$1.6B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$3.8B

Terminal Growth Rate3.00%

WACC8.79%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$67.5B

PV of Terminal Value$29.0B

Exit Multiple Method

Year 10 EBITDA$6.1B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$122.8B

PV of Terminal Value$52.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$12.7B

PV of Terminal Value$29.0B

Enterprise Value$41.8B

(-) Net Debt$2.4B

Equity Value$39.4B

Shares Outstanding211M

Price per Share$186.64

Exit Multiple Method

PV of Projected FCFs$12.7B

PV of Terminal Value$52.9B

Enterprise Value$65.6B

(-) Net Debt$2.4B

Equity Value$63.2B

Shares Outstanding211M

Price per Share$299.64

Pure Model Fair Value

$243.14

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%
6.79%	$306.13	$318.24	$333.53	$353.48	$380.57
7.79%	$264.59	$272.06	$281.09	$292.21	$306.28
8.79%	$232.44	$237.36	$243.14	$250.01	$258.32
9.79%	$206.44	$209.85	$213.77	$218.31	$223.63
10.79%	$184.80	$187.25	$190.02	$193.16	$196.77

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

$193.25

187.5% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.84

Base Case

$243.14

261.7% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.47

Bull Case

$295.63

339.8% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 1.25

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

Growth Assumptions (Select Years)

Year 1 Revenue Growth0.18%

Year 3 Revenue Growth1.48%

Year 5 Revenue Growth3.77%

Year 7 Revenue Growth3.46%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin4.08%

Terminal EBIT Margin12.00%

Tax Rate24.00%

Historical Capex / Rev1.86%

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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