Best Buy (BBY) Chief Financial Officer Darren Jackson publicly speculated yesterday about how the company allocates capital. The discussion has increasing relevance in light of this week’s announcement of Home Depot (HD) share-repurchase program.
An audio podcast of this article is available at: poweropt.com/podcasts/2007_06_22_BBY.mp3
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Jackson said in an investor’s Internet broadcast, “Home Depot set the high bar in terms of what type of financial engineering one wants to do in driving shareholder value. What we’re working through is, we want to strike the right balance between growth and return on invested capital.”
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Jackson feels Best Buy’s business strategy and operational policies are sound, but the company falls short in its financial planning and policies.
To back Jackson’s inference, many analysts and shareholders are agreeing Best Buy’s best use of cash at this time might be to buy back shares. Jackson, with the tone of a cheerleader, said, “We plan to be more aggressive on multiple fronts in returning cash to shareholders this year. What we haven’t done at this point is definitively define the level of aggressiveness where we’re willing to go.”
Best Buy is already on an aggressive buy back schedule. The company has repurchased nearly 400 million shares in the first quarter, compared with about 600 million in all of last year.
In other news yesterday, Best Buy announced it would be speeding up its expansion in China. The company is hoping the fast-growing Asian market will bring higher profits and growth.
Originally, the company planned to add three outlets in 12 to 18 months. The new plan is to open eight to 10 new stores in the Shanghai area over the next 18 months. Robert Willett, chief executive of Best Buy International, made this news public in a Shanghai press conference yesterday.
Looking at this News from an Options Trading Perspective:
Will Best Buy’s buy back mean profits for shareholders? Maybe, but this question gives us an opportunity to show off the nimble capabilities of the PowerOptions search platform. And because option data is often cumbersome and difficult to find, an investor really requires the aid of a solid tool to help them sort through the noise.
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The August Best Buy option trades have 58 days until expiration, and the September trade has 92 days until expiration. These trades were discovered using the powerful suite of option search tools found at PowerOptions.
|PowerOptions covered call search Best Buy (58 and 92 days)|
|BBY||$44.43||BBYHI||07 AUG $45.00||$1.40||3.20%||3.30%||4.60%|
|BBY||$44.43||BBYHV||07 AUG $42.50||$2.85||6.40%||2.20%||2.20%|
|BBY||$44.43||BBYII||07 SEP $45.00||$2.15||4.80%||5.10%||6.40%|
These trades offer 3.2% to 6.4% downside protection and 2.2% to 6.4% potential profit. For the full profit to be realized, the stock must be at or above the option’s strike price at the end of the option period. In this case, the strike price of the options are either $42.50 or $45.00 with a expiration date of either the third Friday in August or the third Friday in September (see chart for details on specific trade). The stock is currently trading at $44.43.
Competitors for BBY include: Circuit City Stores Inc. (CC), Dell Inc. (DELL), Wal-Mart Stores Inc. (WMT), Conns Inc. (CONN), Gamestop Corp. (GME), PC Mall Inc. (MALL), Renters Choice Inc. (RCII), RadioShack Corp. (RSH), and Tweeter Home Entert. (TWTR).
For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions‘ premium customer support is second to none in the industry. They can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.
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