With shares of Wal-Mart Stores Inc. (NYSE:WMT) trading at around $77.40, is WMT an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
Positives for Wal-Mart include strong cash flow, a generous 2.40 percent yield, consistent share buybacks, stock resiliency in bear markets, consistent stock performance, steadily increasing revenue on an annual basis, international sales growth, and fair valuation – the stock is currently trading at 15 times earnings.
Q1 EPS came in at $1.14, which was a 4.6 percent increase year-over-year. Wal-Mart's Q1 comps declined 1.4 percent. The following reasons were given for the comps decline:
Delay in tax refund checks Challenging weather conditions Less grocery inflation than expected Payroll tax increaseCEO Mike Duke stated:
“In a quarter marked by considerable headwinds to top line sales, Walmart delivered solid EPS growth of 4.6 percent. Walmart’s mission is simple and focused — to help people save money so they can live better. When we simplify and focus our execution against this mission, it’s easy for our associates to prioritize what they have to do to serve our customers.
I’m confident about our long-term strategy and the direction Walmart is headed. Our expectations about our U.S. businesses’ performance, coupled with more discipline in International, will allow us to improve our performance throughout the year.
There is no doubt that our company is making the right investments in e-commerce to differentiate ourselves and become a better Walmart. And with our sales growth in the first quarter, we believe our investments are paying off.”
Q2 EPS is expected to come in between $1.22 and $1.27 compared to $1.18 for Q2 in 2012. Q2 comps for Wal-Mart are expected to be flat to 2 percent. Q2 comps for Sam's Club are expected to come in between 1 percent and 3 percent.
Wal-Mart is attempting to increase its online presence. According to Alexa.com, it currently has a global traffic rank of 181, and a United States traffic rank of 41. Over the past three months, pageviews-per-user has declined 12.32 percent, time-on-site has declined 11 percent, and the bounce rate (only one page per view) has increased 12 percent. Needless to say, Wal-Mart needs to make online improvements.
Below is a chart comparing fundamentals for Wal-Mart, Costco Wholesale Corporation (NASDAQ:COST), and Target Corp. (NYSE:TGT).
| WMT | COST | TGT | |
| Trailing P/E | 15.24 | 25.26 | 15.67 |
| Forward P/E | 13.17 | 22.32 | 12.79 |
| Profit Margin | 3.62% | 1.90% | 4.09% |
| ROE | 23.62% | 17.33% | 18.52% |
| Operating Cash Flow | 25.05B | 3.34B | 5.32B |
| Dividend Yield | 2.40% | 1.10% | 2.00% |
| Short Position | 1.70% | 1.30% | 2.90% |
Let's take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Mixed
Wal-Mart has underperformed its peers over the past year. However, investors aren’t looking for substantial gains in Wal-Mart. They’re looking for slow and steady while also collecting dividends.
At $77.40, Wal-Mart is trading below its 50-day SMA, but above its 200-day SMA.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| WMT | -0.40% | 15.02% | 27.08% | 62.87% |
| COST | 8.55% | 15.15% | 48.11% | 121.8% |
| TGT | 3.07% | 20.95% | 30.54% | 43.06% |
| 50-Day SMA | 78.03 |
| 200-Day SMA | 72.68 |
E = Equity to Debt Ratio Is Normal
The debt-to-equity ratio for Wal-Mart is close to the industry average of 0.70.
| Debt-To-Equity | Cash | Long-Term Debt | |
| WMT | 0.75 | 8.86B | 57.08B |
| COST | 0.47 | 5.65B | 4.87B |
| TGT | 1.07 | 788.00M | 17.65B |
E = Earnings Are Steady
Earnings and revenue have consistently improved on an annual basis.
Q1 EPS was $1.14 on $114.2 billion in revenue. Both were year-over-year improvements.
| Fiscal Year | 2009 | 2010 | 2011 | 2012 | 2013 |
| Revenue ($) in millions | 405,607 | 408,214 | 421,849 | 446,950 | 469,162 |
| Diluted EPS ($) | 3.39 | 3.70 | 4.47 | 4.52 | 5.02 |
| Quarter | Apr. 30, 2012 | Jul. 31, 2012 | Oct. 31, 2012 | Jan. 31, 2013 |
| Revenue ($) in millions | 113,018 | 114,296 | 113,929 | 127,919 |
| Diluted EPS ($) | 1.09 | 1.18 | 1.08 | 1.67 |
Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
T = Trends Support the Industry
Wal-Mart is always well-positioned. Those loyal to Wal-Mart will shop there in any economic environment. When the consumer weakens, many middle-income consumers will switch to Wal-Mart. This has been proven in the past. While online retailers are a threat, the biggest threat is the dollar store.
Conclusion
Many stocks have recently been rated OUTPERFORM here due to momentum. However, many of those trends aren't sustainable. Wal-Mart, on the other hand, is a long-term OUTPERFORM.
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