With Amazon getting all the love, shouldn't we think of Bezos' hero, Sam Walton?
Key Stats for Wal-Mart Stores Inc
| Ticker | WMT |
|---|---|
| Sector | Supermarkets & Convenience Stores |
| Latest price | $76.72 |
| Value | $232,581M |
| Daily vol | $500M |
| Date | 10 May 2017 |
| Links | Yahoo Finance, SEC Edgar, walmart.com |
What do they do?
The fluffy stuff:
Wal-Mart Stores, Inc. operates through three segments: Walmart U.S., Walmart International and Sam's Club.
- The Walmart U.S. segment (64% of sales, $308bn) includes its mass merchant concept in the United States operating under the Walmart or Wal-Mart brands, as well as digital retail.
- The Walmart International segment (24% of sales, $116bn) includes various formats divided into three categories: retail, wholesale and other across 27 countries. These categories consist of various formats, including supercenters, supermarkets, and warehouse clubs, such as Sam's Clubs, cash and carry, home improvement, specialty electronics, apparel stores, drug stores and convenience stores, as well as digital retail.
- The Sam's Club segment (12% of sales, 57bn) includes the warehouse membership clubs in the United States, as well as samsclub.com. It's a sort of Costco, I think.
The sheer size of the business is awesome, with 260m people visiting Wal-mart each week. On top of that, read the latest investor presentation and you'll be inspired by their drive and ethic.
The number crunch:
The topline's not showing a lot of oompf. If they get a 1% growth, it's good. Sure a strong dollar doesn't help, but it's hard to see where the growth comes from. And if the topline isn't growth, it's not a surprise that EPS isn't rising.
| Jan year end | 2017A | 2017A | 2015A | 2014A | 2013A |
|---|---|---|---|---|---|
| Revenue | $486bn | $482bn | $486bn | $476bn | $469bn |
| EPS | $4.38 | $4.57 | $4.99 | $4.85 | $5.01 |
Now the business isn't ex-growth, and they are still able to build out new stores, with the US growing to 4,700 today from 4,000 five years ago and overall, inc. international & Sam's Clubs growing to 11,700 stores from 10,400 five years ago. But this tells several stories
- International is over 50% of the stores but less than 25% of the sales
- That revenues per store isn't rising in a meaningful way.
Shareholders get?
Well, divides of course! The forecast dividend of $2.07 compares to a forecast EPS of $4.32. Which is a marginal improvement on last year.
Though on top of this, they did buyback $8bn last year at an average price of $69 a share. And still have a substantial authorization remaining.
As for debtholders v shareholders: the market value is $233bn and there's under $40bn of net debt. Net debt is a manageable 1.2x operating profit, so nothing concerning on the balance sheet side.
How do they compare?
Versus the competition
There's competition everywhere, and when you are the biggest player on the market, the law of large numbers works two ways: (a) scale = better margin (b) little room for growth / everyone's after your turf.
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| Wal-Mart Stores Inc | $485,873M | 7% | 17% |
| Amazon.com, Inc. | $142,573M | 9% | 14% |
| Home Depot Inc | $94,595M | 16% | 149% |
| Walgreens Boots Alliance Inc | $116,081M | 7% | 14% |
| Costco Wholesale Corporation | $121,194M | 4% | 20% |
| Target Corporation | $69,496M | 10% | 22% |
| Dollar General Corp. | $21,987M | 11% | 23% |
| Kroger Co | $115,337M | 5% | 29% |
There are a rake of players with better margins and higher returns, so admirable as WMT is, perhaps there's a better alternative.
You price sensitive?
It's hardly pricey at 18x forecast earnings, relative to the peer group, though remember, WMT has traded as low as 13 times forecast earnings in the last 2 years. That sort of multiple expansion, with no earnings upgrades puzzles me.
| Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | FCF Yield |
|---|---|---|---|---|---|
| WMT | $232,581M | 18x | 5% | 3% | 13% |
| AMZN.O | $455,425M | 142x | 22% | 0% | 2% |
| HD | $189,400M | 22x | 12% | 2% | 7% |
| WBA.O | $92,940M | 17x | 14% | 2% | 8% |
| COST.O | $75,796M | 31x | 10% | 1% | 6% |
| TGT | $32,037M | 15x | 2% | 4% | 19% |
| DG | $20,257M | 17x | 7% | 1% | 9% |
| KR | $26,559M | 13x | 6% | 2% | 17% |
Perhaps the hardest circle-squaring is WMT v AMZN. Sure the long term growth forecast is 5% v 22%, but guess how many years it would take for them to be on the same valuation? 14 years!
To me, the valuation / growth mix looks nicer for $HD and $KR.
What do people think of WMT?
Wall Street says:
The professionals on Wall Street have a $75.01 for WMT which is 2% below the current price, so no wonder their recommendation to clients is Hold. In fact they've hardly moved their target price or recommendation for 6 months, even though the stock's up 10-15%.
Overall sentiment?
Wall Street's not changed it's view in 3/6 months, nor have them moved their forecasts...but the stocks ramped... so sentiment has clearly improved towards WMT.
Well?
Bringing it all together, I'm going to pass on this.
Solid as the business and management are, growth is hard to come by, and after 25 years work outside the US, they still haven't replicated the success internationally. The market's ramped the valuation, despite no fundamental improvement in the underlying business. And I can't see any catalyst to drive valuation or earnings higher.
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Disclosure: I have no position in any of the stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare works at a financial website, Stockflare, and is a Chartered Financial Analyst.
Submitted May 10, 2017 at 05:33PM by shane_stockflare http://ift.tt/2qtcLsN
