Best Buy Co., Inc. (BBY): Why a New CEO Is a New Opportunity to Profit

It will be interesting to see if Mr. Edwards follows the new CEO scenario. Given the tough operating environment, reducing expectations by lowering guidance in the next earnings release is not out of the question. If he does issue a warning, any drop in the shares may be appealing. With sales of around $45.0 billion and cash earnings of $1.1 billion, Safeway’s reasonable business value looks around $28 per share given a current conservative industry multiple of 6.

Not all situations are interesting

Not all executive changeovers are compelling, however. Tim Hortons Inc. (USA) (NYSE:THI), a large Canadian chain of donut shops, is an example of this. New CEO Marc Caira will lead the company starting on July 2. Tim Hortons Inc. (USA) (NYSE:THI) reported a mixed last quarter, with a 1.4% rise in revenue to $728 million and net income per share at an adjusted $0.61 per share, compared to $0.56 per share a year earlier. Same store sales were down by 0.5% in the U.S. and 0.3% in Canada, hurt by tough weather and heightened competition.

Though the company had lukewarm quarterly results and an upcoming CEO change, there were a couple of reasons why the situation at Tim Hortons Inc. (USA) (NYSE:THI) wasn’t that interesting. One is that hedge fund Highfields Capital, which owns about 4% of the shares, has been pressuring the company to take on new debt to buy back shares and stop further U.S. expansion. With a hedge fund on its back, the company is limited as to how much it can actually lower expectations. Plus, the company’s shares already look pretty enthusiastically priced. Based on estimated annual sales of $3.3 billion and cash earnings of $437 million, the shares trade at an aggressive 18.5 multiple.

Conclusion

When a new CEO comes on board, he or she likes to start with a clean slate, subsequently downplaying expectations and taking significant charge-offs that often set the stage for later stock price gains. Investigating companies with a change in the executive suite is an effective way to position yourself to a piece of those profits.

The article Why a New CEO Is a New Opportunity to Profit originally appeared on Fool.com and is written by Bob Chandler.

Bob Chandler has a long position in Big Lots. The Motley Fool owns shares of Big Lots. Bob is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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