Performance Review

1
Performance Review
2
Goal

• Select a company to outperform the Nasdaq during
  the period of October 2 through November 27
• Considerations
• BBY Best Buy Co., Inc.
• CHK Chesapeake Energy Corp.
• UNH UnitedHealth Group, Inc.
• JBLU Jetblue Airways Corp.
• PLA Playboy
• CAKE Cheesecake Factory

3
Choice - Best Buy (BBY)

• Best Buy was selected for the following reasons
• Holiday Season
• Market Leader
• PS3 and Wii Release
• Prior NASDAQ Performance
• Best Buy Performance vs. NASDAQ

4
Business Description

• Retail Electronics Market Leader Since1996
• Operates 1,100 retail stores

Jiangsu Five Star Appliance Company
5
An Industry Innovator

• Compensation Structure
• Facing Commoditization
• Customer-Centricity Operating Model

6
Competitive Strategy

• Best Buys competitive strategy is comprised of
  six components
• Conversions of Traditional Stores
• Store Expansion
• Small Business Growth
• Computer Services and Home Theater Installations
• Digital Services
• International Growth

7
Sustainability

• New Competition
• Physical uniqueness
• Economic deterrence
• Existing Competition
• Ease of imitation
• Continued addition of new services
• International growth

8
Risk Analysis

• New Technologies
• Customer Centricity strategy execution
• Consumer spending
• Execution of Best Buy for Business, Geek Squad,
  and Magnolia Home Theater focus areas

9
Risk Analysis

• New Technologies
• Long term demand for CDs and DVDs likely to fade

10
Risk Analysis

• Customer Centricity execution risk
• First 32 stores showed 7 increase in Sales
• Goal to provide less cyclical results and gain
  more stable relationships with high-value clients
  
• If remaining stores lag that rollout rate,
  earnings will be negatively affected
• While transitioning, there are two models and
  therefore costs

11
Risk Analysis

• Consumer spending
• Mortgage Equity Extraction
• People drawing equity out of homes to finance
  consumption
• Competitor Sales
• Sales by competitors erodes profits for BBY
• Gaming systems are 1/3 of BBY Entertainment SW
  sales
• During 2005, new gaming systems were 25 of
  gaming sales.
• Expecting 60 this year with new offerings
• After new launch, peak sales occur during second
  holiday season, not the first

12
Risk Analysis
13
Risk Analysis

• Execution of Best Buy for Business, Geek Squad,
  and Magnolia Home Theater focus areas
• Risk comes from two areas
• Competition Circuit City, Walmart, Target, etc.
• Cost containment Geek Squad training, overhead
  integration, etc.

14
Time Frame Concerns

• Short Term (Day Trading)
• Advantages
• News, Rumors, Releases
• Prediction Strategies
• Quick Turnaround
• Disadvantages
• Greater Risk
• Large Capital Necessary
• High Commissions/Taxes
• Long Term
• Advantages
• Stability
• Predictability of Performance
• Lower Commissions/Taxes
• Disadvantages
• Lower ROI
• Neither (2 month, with set deadlines)
• Advantages
• ???

15
Exxon (XOM) Example5 Years Prior to October 2,
2006

• Overall positive trend
• No splits
• Based on 20/share starting price annual gains
  of approximately 22
• Outside of dip between Spring 2002 and Summer
  2003, stock is fairly consistent with gains
• Approximately 3-4 expected average return for 2
  months

16
Exxon (XOM) Example2 Month Time Frames

• Price increased nearly 50 over past 1 year (56
  to 74)
• There are approximately 4 months worth of time
  during that year that a 2 month investment would
  have lost money despite the overall success of
  the time frame

17
Market on Open Impact for BBY

• Historic Impact at Market on Open
• BBY 20ADV 6,890,050 shares
• MOO 20ADV 88,565 shares
• 100,000 BBY _at_ 53.56 - 1,867 shares
• Impact - 2.11 of MOO
• Minimal to No Impact
• Actual Impact at Market on Open
• Actual MOO on 10/2 46,700
• Impact - 4.00 of MOO
• Minimal to No Impact

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Example MOO Impact for PLA

• Historic Impact at Market on Open
• PLA 20ADV 192,995 shares
• MOO 20ADV 7,700 shares
• 100,000 PLA _at_ 9.48 - 10,549 shares
• Impact - 137 of expected MOO shares
• Significant Impact
• Actual Impact at Market on Open
• Actual MOO on 10/2 3,900
• Impact - 270 of MOO
• Significant Impact

19
BBY - 5 Years Prior to Oct 2, 2006

• Upward Price Channel from February, 2004 to
  Present
• October 2003 to May 2005
• Support at 30/share (demand exceeding supply)
• Resistance at 42/share (supply exceeding demand)
• May 2005 to Present
• Previous resistance becomes new support at
  42/share

20
1 Year Prior to October 2, 2006

• Gain of approximately 29 (4-5 expected return
  over 2 months)
• Support at 44/share level (demand exceeding
  supply)
• Resistance Zone between 56/share and 58/share
• September 12 positive BBY earnings report
• Early July poor electronics news (WMT, TGT),
  Mid-East tensions pushes oil higher, markets
  lower
• July 16 - Downgrade by A.G Edwards (Buy to Hold)
• Discounting July - early September, support is
  at 50/share level

21
3 Months Prior to October 2, 2006

• Prior to September 12th earnings call
• Support Zone between 44/share and 45/share
• Early July poor electronics news (WMT, TGT)
• July 12 - Upgrade by Matrix Research (Hold to
  Buy)
• July 16 - Downgrade by A.G Edwards (Buy to Hold)
• July 18 - Upgrade by Prudential (Neutral to
  Overweight)
• Post September 12th earnings call
• positive BBY earnings report takes stock from 45
  to 56
• September 12 - Raymond James reaffirms Strong Buy
  (imagine that)
• Support at 54/share level

22
BBY vs. NASDAQ5 Years Prior to October 2 ,2006

• BBY increases 150 (3.1 Bi-Monthly)
• NASDAQ (IXIC) increases 50 (1.3 Bi-Monthly)

23
BBY vs. NASDAQ1 Year Prior to October 2 ,2006

• BBY increases 25 (3.8 Bi-Monthly)
• NASDAQ (IXIC) increases 5 (0.8 Bi-Monthly)

24
1 Year Ending November 27, 2006

• Support at 44/share level (demand exceeding
  supply)
• Resistance Zone between 56/share and 58/share
• Early July poor electronics news (WMT, TGT),
  Mid-East tensions pushes oil higher, markets
  lower
• September 12 positive BBY earnings report

25
3 Months Ending November 27, 2006

• Actual gain from MOO October 2, 2006 to MOC
  November 27, 2006 is 1.51
• Support Zone between 52/share and 54/share
• Resistance Zone between 56/share and 58/share
• Early July poor electronics news (WMT, TGT)
• July 12 - Upgrade by Matrix Research (Hold to
  Buy)
• July 16 - Downgrade by A.G Edwards (Buy to Hold)
• July 18 - Upgrade by Prudential (Neutral to
  Overweight)
• September 12 positive BBY earnings report takes
  stock from 45 to 56

26
BBY vs. CC

• Very similar performance
• Oct 9th Nov 13th CC is able to maintain 4-5
  over BBY
• Lead eventually disappears November 15, 2006
• BBY continues to trend upward while CC stays
  fairly flat

27
Actual Performance

• From MOO on October 2, 2006 until MOC on November
  27, 2006 Best Buy Co. Inc gained 1.51 while the
  NASDAQ (IXIC) gained 6.60
• 100,000 investment in BBY would have returned a
  gain of 1,512
• 100,000 investment in the NASDAQ would have
  returned 6,597
• Conclusion Team 6 would now be looking for a
  new job.

28
Alternative Pick Performance

• Investment across six initial picks yielded 13.7
  return

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Q A