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Acquistions, Joint-Ventures and E-Commerce - the Fuel of Wal-Mart's Revenues
Posted by: Damian Illia (IP Logged)
Date: December 5, 2013 11:55AM
Wal-Mart Stores Inc. (WMT) is the largest retailer in North America. It operates retail stores in various formats worldwide, a chain of over 10,000 discount department stores, wholesale clubs, supermarkets and supercenters. The company operates in three segments: Walmart U.S. (59.0% of the company´s sales in fiscal 2013), Wal-Mart International (29%), and Sam's Club (12%).
Investments in E-Commerce
On Oct. 2013, Wal-Mart announced it would open two new centers dedicated to filling online orders, one located in Texas and the other in Pennsylvania. These centers are just part of a next-generation fulfillment network that will deliver U.S. customer orders faster and at a lower cost. Wal-Mart said it has improved delivery speed by 15 percent while cutting costs by 10 percent.
This giant has a good exposure to international markets. At the beginning of 2013, it operated 377 units in Africa, 379 in Canada, 642 in Central America, 393 in China, 438 in Japan, 2,353 in Mexico, 981 units in South America (94 units in Argentina, 558 in Brazil and 329 in Chile), 565 in the UK and 20 in India (joint-ventures). As a consequence, it is one of the three largest retailers in the world. Additionally, the firm purchased 51% of Massmart, a wholesale and retail operator in South Africa, and also acquired Netto Food Stores Limited, an operator of 193 stores in the U.K.
In terms of valuation, the stock sells at a trailing P/E of 15.5x, trading at a discount compared to an average of 19x for the industry. Analysts’ expectations imply a forward P/E of 14.22. To use another metric, its price-to-book ratio of 3.6x indicates a premium versus the industry average of 1.8x and the price-to-sales ratio of 0.6x is above the industry average of 0.4x.
Earnings per share (EPS) increased by 5.5% in the most recent quarter compared to the same quarter a year ago. Also, it has demonstrated a positive trend over the past 10 years. We include the stock price because EPS often lead the stock price movement.
Finally, I always like to see of one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. The ratio has increased when compared to the same quarter one year ago. I have to emphasize this because is a signal of major strength within the company. Wal-Mart ROE of 22.3% is above the industry mean of 8.7% and also higher than Costco Wholesale Corporation (COST) and Target Corp (TGT).
Wal-Mart's e-commerce business is expected to be in excess of $10 billion and competes for market share with Amazon.com (AMZN). Moreover, through acquisitions and joint ventures, we expect an improvement in earnings, giving upside potential for the stock price.
Hedge fund guru John Rogers bought this stock. Others gurus like Richard Pzena, James Barrow, Jim Simons, Joel Greenblatt and John Hussman added this stock to their portfolios, so I would advise fundamental investors to consider adding Wal-Mart to their portfolios as it seems to be an attractive option.
Disclosure: Damian Illia holds no position in any stocks mentioned.
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Jim Simons: Current Portfolio, Stock Picks
Stocks Discussed: WMT, COST, AMZN, TGT,