Buffett increased his holding of Walmart by 17,892,342 shares in the third quarter of 2009 at an average price of $50, and again by 1,200,500 shares in the fourth quarter at an average price of $52.50. He then brilliantly bought 7,671,000 shares at an average price of $61 in the first quarter of 2012, just before the stock surged more than $10 to $72.31 at latest quote.
At the new price, Walmart is approaching fair value. While its stock price remained flat for a decade, Walmart’s EBITDA grew at 11.3%, and it had record earnings per share of $4.54 in fiscal 2012. In 2003, Walmart’s P/E was as high as 33. When Buffett bought more in the first quarter, the P/E was around 13, near its 10-year low. The P/E has since risen to 15.5.
Walmart’s revenue has increased each consecutive year, including through the recession, for the last decade, to a record $447 billion in fiscal 2012. Its gross margin has also been on a widening trend.
Walmart continues to increase its dividend in 2012. In March, its board approved an increase from $1.46 to $1.59 per share in fiscal 2013, an equivalent of paying about $5.52 billion. This continues the company’s history of increasing its dividend every year since 1974. Last year, it raised its dividend 20.7%. The company also bought back $6.3 billion worth of shares in fiscal 2012.
Last year, GuruFocus valued Walmart with a fair value of $78, assuming a 10% EPS growth rate over the next 10 years and 3% terminal growth rate. Today it trades for just over $72, near fair value, with a reduced margin of safety.
Now, GuruFocus’ valuation tab shows the stock’s price as higher than its valuation numbers. Its Graham Number is $39.26, Peter Lynch Fair Value is $38.10 and Intrinsic Value (DCF) of $58.63.
Yesterday, Buffett’s company, shares of Berkshire Hathaway (BRK.A)(BRK.B), rallied too, to their 16-month high. The stock is up more than 10% year to date to $125,321 for one share. On May 4, Berkshire announced improved operating earnings of $2.7 billion, up from $1.6 billion in the first quarter of 2011. Net earnings were $3.2 billion, up from $1.5 billion the prior-year quarter, marking the third consecutive year of increases.
In his CNBC interview this morning, Buffett said he was more concerned that the U.S. economy is shrinking and growth slowing as consumer spending begins to sow and affect businesses. This could be pushing investors toward “safer” stocks of large companies. Buffett also believes that housing is picking up, which would benefit Berkshire, which owns the largest home builder, Clayton Homes.
Berkshire Hathaway has a Graham Number of $116,768 and no Intrinsic Value (DCF) or Peter Lunch Value.
Buffett says he is still optimistic about the economy in spite of the slowdown. “I love owning businesses in the United States. We’ll invest $9 billion almost in the United States almost at Berkshire this year. I am a bull on America. We have to run it right, that’s all,” he said.
See Warren Buffett’s current portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Warren Buffett.