Wal-Mart Stores, Inc. (WMT, Financial) is the world’s largest retailer serving customers and members more than 200 million times per week at more than 8,4446 retail units under 55 different banners in 15 countries.1 Wal-Mart had fiscal year 2010 revenues of $408 billion and employs more than 2.1 million associates worldwide. (The fiscal year ends Jan 31).3
As of July 6, 2010, WMT sold for $48.57 per share with a 1 year Target Estimate of $61.60, a 52 week Range of $47.35 - $56.27, a Forward Annual Dividend Yield of 2.50%, P/E (ttm) of 12.74, Market Cap of $180.18B, Total Debt (mrq) of $46.98B, Revenue (ttm) of $413.82B, Operating Cash Flow (ttm) of $23.65B, Levered Free Cash Flow (ttm) of $12.00B, Operating Margin (ttm) of 6.06% and Profit Margin (ttm) of 3.54%. EPS (ttm) were $3.81. Average Analyst Estimates of EPS for 2010 (as of January 2011) are $ 4.01 (low of $ 3.88 and high of $ 4.11) and for 2011 (as of January 2012) are $4.40 (low of $4.14 and high of $4.64).
1. Wal-Mart is the biggest. Wal-Mart is the world’s largest retailer. That gives them HUGE buying power and they know how to use that advantage.
2. They are very effective at beating up suppliers to get the best prices, terms and service. Some retailers make decisions based on relationships, back-scratching and even kick-backs. At Wal-Mart it is strictly the bottom line and they are very, very tough. They enjoy beating up suppliers to get a better deal than anyone else.
3. Their corporate culture perfectly suits their business model. No frills. Always cost conscious. Never forget Sam Walton. Constantly seeking ways to do things better, faster and cheaper. Very tough. Very smart.
4. Barriers to entry. No one could duplicate their real estate locations.
5. Long History of Consecutive Dividends. Wal-Mart first paid dividends in 1974 and has paid them regularly since. Management has followed a policy of increasing dividends every four quarters.1Over the ten year period from 2000-2009 the dividend per share increased at an average annual rate of 19%. The Average Annual Dividend Yield increased from 0.4% in 2000 to 2.1% in 2009.3 The current Forward Annual Dividend Yield is 2.50% and 28% of earnings are being paid out as dividends.1
6. P/E Far Below the 10 Year Average. Over the 10 year period from 2000-2009, the P/E averaged 23.2. In 2000 the Average P/E Ratio was 38. The P/E (ttm) on July 6, 2010 was 12.74.3
7. Stable EPS and Net Profit Margin. Over the 10 year period from 2000-2009, EPS increased from $1.40 to $3.66. EPS increased every year and the average annual increase was 11.16% over the ten year period.3 In 2007, EPS were $3.16, $3.42 in 2008 and $3.66 in 2009. During the same ten year period (2000-2009) the average annual Net Profit Margin was 3.4% and the range was from 3.1% (2001) to 3.6% (2004). In 2008 the Net Profit Margin was 3.4% and in 2009 it was 3.5%. Over the nine year period from 2000-2009, Wal-Mart’s revenues increased at an average annual rate of 9.4%.
8. Wal-Mart is innovative. Their innovations are well known.
9. They have a “cheap” mentality and are proud of it. They are based in Bentonville Arkansas and do the best job in the industry of keeping costs low. If they ever move to New York I will sell.
10. They provide staples that we must have and aren’t vulnerable to technological change. For example, I don’t see any way they could suffer the fate of AOL or Blockbuster.
11. They can survive tough times. In this recession people are shopping at Wal-Mart for groceries who didn’t shop there during better times. Revenue growth has slowed, but I have no doubt that Wal-Mart will survive.
Sources:
(1) Wal-Mart website
(2) Yahoo Finance
(3) Value Line
Disclosure: I own WMT
Copyright Jack Huddleston, 2010
You are allowed to copy all or part of this article as long as you credit:
Jack Huddleston, http://www.jamesjackhuddleston.com
