Moody’s is overstating Best Buy Co., Inc.’s (NYSE:BBY) credit risk with its Baa1 rating. Our fundamental analysis highlights a safer credit profile for BBY, whose strong cash flows consistently exceed all operating obligations. While cash flows would slightly fall short in 2021, their substantial liquidity would allow them to overcome this with ease. We therefore rate BBY two notches higher at an IG3 (equivalent to Baa1) credit rating.
Additionally, cash bond markets are overstating the firm’s credit risk with a CDS at 194bps relative to an Intrinsic CDS of 77bps, and a cash bond YTW of 3.110% relative to an Intrinsic YTW of 1.910%.
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