Walmart Stores, Inc. (WMT) is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company has over 2 million employees.
The company was founded by Sam Walton in 1962, incorporated on October 31, 1969, and the company’s shares began trading on OTC markets in 1970. They were listed on the New York Stock Exchange two years later. It is headquartered in Bentonville, Ark.
From the table below, we can see that sales are in an uptrend over the last five years. The same is true for net income, income after depreciation & amortization and diluted earnings per share (both before and after non-recurring Items). This is a very positive development.
The chart below shows the share price on the right hand scale (black thin line) and the earnings per share on the left hand scale (red dotted line). We can see that although the earnings per share have been growing steadily over the last 16 years or so, the share price hasn’t moved for about 12 years after they peaked in 1999-2000.
A flat share price, combined with rising earnings per share caused the price-earnings ratio to drop to an all-time low as we can see in the following chart (red line, left-hand scale).
The share price-to-sales ratio is also near an all-time low as we can see in the following chart:
The same is true for the price-to-book value:
Walmart Stores has never paid a higher dividend yield than it does right now (green line, left-hand scale).
When we look at the number of Shares outstanding, we can see a strong downtrend: Walmart has been buying back huge amounts of shares over the last 10 years:
WMT has quite a lot of debt, but this isn't a problem as the free cash flow is high enough to cover this debt.
Total current liabilities are bigger than total current assets, which means that part of the noncurrent assets are funded with short term debt. This is a minus for the Balance sheet.
When we look at other key statistics, we can see that Walmart Stores is trading in the lower end of the 52-weeks trading range between $50 and $57.90 with a price tag of $52.71 right now. The stock has a low beta, which means it is little correlated with the general market sentiment. Analysts are neutral to positive about this stock, as 15 rate it Strong Buy, 1 Buy and 1 Hold. Earnings per share are expected to grow steadily over the next couple of years, and the price-earnings ratio is near an all-time low.
The company generated a return on equity above 20% on average over the last five years. Last but not least, the stock pays a dividend yield of 2.80% right now.
We can see that Net Income for 2010 was $ 16,389,000,000, while Depreciation was $7,641,000,000 and Capital expenditures were $ 12,699,000,000. This means that Free Cash flow was roughly ($16,389,000,000 + $ 7,641,000,000 - $ 12,699,000,000) = $ 11,331,000,000.
We can see in the table above that there were roughly 3,472,560,000 shares outstanding. That means Free cash flow per share is roughly $ 11,331,000,000 / 3,472,560,000 = $ 3.26 per share. The current share price is $ 54.52, which means the stock is trading at roughly 17 times Free Cash Flow.
At the end of last quarter (April 2011), the company had about $ 9.4 Billion in cash and about 55.68 Billion in debt, so the net Debt position is roughly ($55.68 Billion - $9.4 Billion)= $ 46.28 Billion.
On the third link, we can see that analysts expect the company to grow at 12% annually over the next five years. We take into account a growth rate of 10% for the first five years instead, and a growth rate of 6% for the five years thereafter to be conservative.
Taking these numbers into consideration, we calculated an intrinsic value of $78.57 per share, which means the stock has about 49% potential from current levels.
Based on the fundamentals explained above, we rate Walmart Stores BUY.
We can clearly see an uptrend over the very long run.
Over the medium to long term (last 10 years), however, we can see that the share price hasn’t moved much:
In the short term, the stock seems to be in an uptrend, although all three key Exponential Moving Averages (20EMA, 50EMA and 200EMA) are now turning down. Support is to be found around $52-52.5, followed by $51, $50 and $47.50.
· Fundamentally: Buy
· Long term: Buy
· Medium term: Buy near low of trading range (around $42)
· Short term: Buy near support levels
Overall, we rate Wal-Mart Stores BUY. We will add WMT to our portfolio, and will give it the usual 4% weighting.
Disclaimer: This analysis is for informational purposes only. This is not a recommendation to buy or sell financial instruments. People can lose all of their capital and even more by investing. Seek your registered financial professional before investing. For more analyses and updates, please register at www.profitimes.com
About the author:
By nature, he is a value investor who looks at big macro trends in order to deploy capital accordingly. However, he also looks for short term opportunities in any market.