1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Naman Shukla
Naman Shukla
Articles (208) 

Walmart Looks Like a Great Long-Term Pick

The giant retailer has made several smart moves to compete efficiently with Amazon

March 20, 2017 | About:

Walmart (NYSE:WMT) ended 2016 in the green as the stock was up nearly 13%. Despite the escalating competition, the retailer managed to reward investors with healthy returns in the previous year, which looks pretty impressive. Currently, the retailer faces tough competition from its foremost rival, Amazon.com (NASDAQ:AMZN).

Walmart reported better-than-expected fourth quarter results in February. In the fourth quarter, the company’s earnings per share (EPS) of $1.30 plunged approximately 13% year over year but came in ahead of the analysts' estimate of $1.29. The company’s revenue came in at $130.93 billion, missing the analysts' estimate by $290 million.

The reported revenue represents an upsurge of 1% compared to -1.4% in the same quarter of the previous fiscal year.

As a matter of fact, the unrelenting rise of e-commerce is what places Amazon ahead of Walmart. However, to compete efficiently with Amazon, the giant retailer is now aggressively focusing on its online sales operations. In terms of revenue, the retailer has turned itself into the second-largest online retailer in the U.S.

According to a forecast report from statista.com, retail e-commerce sales in the U.S. alone are projected to reach $485 billion by 2021, a surge of $163 billion compared to that in 2016.

To strengthen its online sales, the retail giant acquired Jet.com, China’s second-largest e-commerce company, for $3.3 billion in 2016. Also, the company introduced an online grocery pick-up and delivery service. Moreover, the company recently started a new free two-day shipping plan, intended to compete directly with Amazon’s prime service.

The company’s U.S. online sales surged 29% year over year throughout the fourth quarter. Despite the rapidly growing online sales trend, the retailer also reported same-store sales growth of 1.8% in Walmart's U.S. business.

It can be said that the company’s aggressive efforts, especially its two-day shipping plan, to grasp a considerable portion of online sales will hurt its margins but will likely reap fruitful results in the long run.

For the full year 2016, the retailer produced an operating cash flow of $31.5 billion and free cash flow (FCF) of almost $21 billion, 30% more than the free cash flow generated last year. The company spent $6.2 billion for dividend payments, $3.6 billion to reduce its debt and $8.3 billion for its stock repurchase program.

On the other hand, while capitalizing on future growth, the company also efficiently managed to increase its dividend for 44 successive years. The retail giant currently offers a yearly dividend of $2.04 per share resulting in a healthy dividend yield of 2.92%.

Conclusion

Walmart performed very well in 2016 on the back of its growing online sales. Moreover, the company continues to introduce several innovative services to further strengthen its growing online sales. The retailer’s ability to generate a huge amount of free cash flow will certainly help it to grow well in difficult situations.

Currently, the stock trades at a price-earnings (P/E) ratio of almost 16, considerably below the industry’s average of 33. It also offers a healthy dividend yield of 2.92%.

Accordingly, investors should continue to hold the stock for additional gains in the future.

Disclosure: I don't hold a position in the stock mentioned in this article.

Start a free seven-day trial of Premium Membership to GuruFocus.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


GuruFocus has detected 4 Warning Signs with Wal-Mart Stores Inc $WMT.
More than 500,000 people have already joined GuruFocus to track the stocks they follow and exchange investment ideas.

Performances of the stocks mentioned by Naman Shukla


User Generated Screeners


HOLKLSUMini Group NON-Trending Q2 201
DANGORDON5 YEAR TOTAL RETURN 5-29-17
DANGORDONHIGH GR EBITA 5-29-17
DANGORDONOPERATING MARGIN PR0FIT 5-29-
bjackScreener Personal v2
bjackScreener Personal v1
rofixFiltro1
cspunarHigh R&D
cspunarGood Company
alexbernal0GreenblatNew
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
FEEDBACK