Could These Two Companies Follow Dell Inc. (DELL)’s Lead?

It’s clear that Best Buy can’t continue under the current business model of operating gigantic stores with items more expensively priced than discount retailers and online competitors.  The company is a solid cash flow generator and has a valuable brand name.  It might do the company (and its shareholders) well by going private and allowing management to being taking the necessary steps to turn the business around.

The bottom line

Unfortunately for long-term investors, Wall Street is notoriously fickle and short-sighted.  Stocks are frequently held hostage to their quarterly results.  There’s very little forgiveness awarded to a company in the midst of a turnaround.  All that matters to the analyst community is whether the company hits its quarterly revenue and earnings targets.  Miss by a penny or two, and a company’s shares can crater in the public markets.  Even if the reasons for such a miss are due to a company’s management making necessary decisions to save its future, turnaround stocks frequently suffer low valuations.

Like Dell, Pitney Bowes and Best Buy have well-known brand names with solid free cash flow generation.  Both Pitney Bowes and Best Buy offer shareholders big dividend yields, but both stocks are being punished with very low multiples of EBITDA.  It makes a lot of sense for these two companies to go private, thereby affording them the ability to turn themselves around without constantly being held under the harsh spotlight of Wall Street analyst expectations.

The article Could These Two Companies Follow Dell’s Lead? originally appeared on Fool.com and is written by Robert Ciura.

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