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Walmart Provides Value to Customers, But Does the Stock Provide Value to Investors?

Tuesday, June 20th, 2017

In the new retail world, traders seem to be panicked that Amazon is going to put the entire industry out of business. Walmart (WMT) is one company that seems to be taking steps to battle Amazon. This includes offering 2-day free shipping and purchasing companies such as Jet.com and Bonobos.

Walmart has the name and resources to fight back against Amazon, but does this warrant buying the company at these levels? One area of concern is the $15 and increasing minimum wage controversy around the country. This would have a significant impact on Walmart employees and the company’s earnings moving forward.

Walmart is in the services sector and the discount, variety stores industry.

The current price for WMT is $75.68 and the 52-week range is $65.28 - $80.47.

Looking at the valuation ratios, the current Price/Earnings ratio is 17.1, while the industry average is 17.3. This is a positive for Walmart, as we like to see lower valuation ratios. Price/Sales of 0.4 the same as the industry average of 0.4. Price/Tangible Book value of 4.06 is also below the industry average of 4.64, but Price/Cash Flow of 9.3 is above the industry average of 7.7.

WMT pays a strong dividend of 2.7% and uses just 45% of earnings to pay out its dividend.

Sales have grown by 1.4% quarter over quarter versus the industry average of 3.4% and by 0.9% year over year versus the industry average of 2.5%. Sales growth has lagged the industry average, which would be a negative for this company. As an investor, it would be important to understand the reason this occurred and how online sales in particular have been faring at Walmart.

EPS growth has fared positively as it has grown 2.2% quarter over quarter compared to the industry falling 1.6%.  Year over year WMT has seen EPS fall by 2.5%, but this again compares favorably to an industry average that declined 4.0% during the same time frame. 

Turning to the balance sheet, liquidity is a concern. The current ratio of 0.77, shows the WMT has more in current liabilities than current assets. It is even more concerning when seeing a quick ratio of 0.19. The quick ratio excludes inventory from the current assets when calculating the ratio. The company’s leverage looks to be in a good position as Total Debt/Equity of 63.1% is below an industry average of 75.4%.

Looking forward to January 2019 and using a forward multiple of 16.5 Estimated GAAP EPS of $4.62 gives us a target sell price of $76.23. This does not leave much room for growth based on the current stock price. For this reason, WMT would be considered a Hold, rather than a Buy.h and low analyst estimates. The high estimate is $4.34 and the low estimate is $0.39. This wide range makes the average estimate less reliable. Although the target sell price is more than 50% away from the current price and the company has many positives, there are many questions that need to be answered and further research that should be conducted before buying this company. 


Do you have a question or a company you'd like us  to take a look at? Email us at Brent@WilseyAssetManagement.com or Chase@WilseyAssetManagement.com.