Wal-Mart Scours Globe For Growth

7/18/2011


  Recent Price
$54
  Dividend
$1.46
  Yield
2.7%
  P/E Ratio
13
  Shares (millions)
3,513
  Long-Term Debt as % of Capital
42%
  52-Week Price Range
$57.90 - $49.09

Plagued by weak labor markets and nervous consumers, U.S. same-store sales at Wal-Mart Stores ($54; WMT) have declined in eight straight quarters. During that time the stock has crept 4% higher, lagging the 65% rally of the S&P 500 Index, despite buybacks that trimmed Wal-Mart's share count by 11%.

For growth, Wal-Mart relies on its international business, where revenue rose 12% in fiscal 2011 ending January. Overseas sales account for about 26% of annual revenue, up from 17% a decade ago. For fiscal 2012 ending January, Wal-Mart plans to add at least 33 million square feet of retail space, about two-thirds of it outside the U.S. The stock, yielding 2.7%, is a Long-Term Buy.

International adventures

After a battle with labor unions, Wal-Mart acquired a 51% stake in Massmart, a retailer with about 288 stores in 14 African countries. Africa has its problems but also presents a significant growth opportunity. Competition is limited in Africa, a continent with more families earning an annual income above $20,000 than India.

Prior to the Massmart deal, Wal-Mart's international business encompassed more than 4,100 retail and wholesale stores in 14 countries, including Argentina, Brazil, Chile, China, and Japan. Recent success suggests Wal-Mart has learned from its blunders. In 2006 it pulled out of Germany and South Korea after failing to align itself with local standards and tastes. Missteps in Germany ranged from stocking stores with American-sized pillow covers to employing baggers even though many Germans dislike strangers handling their food.

Wal-Mart is likely to expand only in markets where it can both compete profitably and gain sufficient scale to offer low prices. The company could try to augment its position in Brazil, where it is the third-largest food retailer. Wal-Mart is reportedly weighing expansion in Nigeria and Angola.

Despite progress abroad, U.S. Walmart stores remain the company's highest-margin segment and generate 73% of operating profits. Results at these stores will likely need to rebound for Wal-Mart shares to advance meaningfully. Management believes changes in product mix can halt the decline in U.S. same-store sales by the end of the current fiscal year. The retailer is also rolling out a chain of smaller Walmart Express stores to challenge dollar-store chains.

Conclusion

The consensus projects per-share-profit growth of 10% this year, next year, and annually over the next five years — targets that seem achievable, though by no means guaranteed.

Shares trade at 13 times trailing earnings, near the cheapest P/E in more than a decade and a 12% discount to their three-year average. If the P/E multiple reverts to that three-year average and Wal-Mart matches the consensus for the next two fiscal years, the shares could be worth $72 in a year and a half. At 12 times projected earnings for fiscal 2012, Wal-Mart trades 24% below the average consumer-staples stock in the S&P 1500 Index. An annual report for Wal-Mart Stores Inc. is available at 702 S.W. 8th St., Bentonville, AR 72716; (479) 273-4000; www.walmart.com.

WAL-MART STORES
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Apr '11
0.98
vs.
0.87
+ 4%
56.73
-
50.97
14 - 12
Jan '11
1.34
vs.
1.17
+ 2%
57.90
-
53.14
15 - 14
Oct '10
0.90
vs.
0.84
+ 3%
54.82
-
50.00
14 - 13
Jul '10
0.97
vs.
0.88
+ 3%
54.95
-
47.77
15 - 13
Year
(Jan.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2011
420.02
4.07
1.21
57.90
-
47.77
14 - 12
2010
406.10
3.66
1.09
55.20
-
46.25
15 - 13
2009
402.30
3.42
0.95
63.85
-
46.92
19 - 14
2008
375.38
3.16
0.88
51.44
-
42.09
16 - 13
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
85
69
75
82
59
20
67

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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