Wal-mart has been on my radar for a while since Benjamim first suggested it in 2009, but it's never been sexy enough for me. Where is the profit in a low margin business? Volume. The problem is most of Wal-mart's Volume is in the US, exactly where I didn't want my portfolio to develop a bias toward. However with the recent market crash and Wal-mart's strong balance sheet it's picked up a lot of cheep bonds, which I think it's going to use to expand into urban centers and open more international stores. That means growth, and I like growth.
Price at time of write up: 54.26
Valuation Ratios:
Price/Earnings (TTM) . . . . . 13.79x
Price/Sales (TTM) . . . . . . . 0.47x
Price/Book (MRQ) . . . . . . . 3.05x
Price/Cash Flow (TTM) . . . . 8.58x
Thomas . . . . . 3/5
Davison . . . . . 5/5: fair value 58
Benjamim . . . . 5/5: Target 63
The general concensus is that Wal-mart is undervalued, but that it's price won't be breaking out any time soon - and that's fine with me. Even if the only price improvements come from share buy backs from the excess cash, I'm more than happy, but I expect it's price not to retreat as much as either the dollar or the S&P500 if the down slope turns into a down turn. Wal-mart is also shifting from trying to increase it's U.S. square footage each year to maximizing the value from the space it already has, which I like, while increasing it's international foot print which I also like. They're also planning on opening more urban locations with a smaller foot print focusing on fresh produce, which is basically good. Except I don't expect significantly increased food prices beyond that created by inflation. In any event, since items tend not to stay on Walmart's shelves for more than 7 days, I look forward to shopping at some of their fresh produce locations to see if they can maintain that edge with food products. Despite that, I expect consumers to continue to act in a price sensitive fashion for the next two to three years, and feel this is a good stock to hold onto for at least 1.5+ years.
At worst I expect wal-mart to perform no better than Coke, but with greater growth potential so it should at least maintain the value of the dollars I put into it. The U.S. expansions will be focused on "hypermarts" (a twist on "super market") and since everyone needs to eat those stores should generate steady revenue from the price sensitive consumer who eats. As a provider of consumer staples and high turn around Wal-mart should be able to weather the substantial inflation in our future since the fed is hell bent on avoiding deflation. Additionally the excellent prices Wal-mart is able to offer in the U.S. is partially based on our infrastructure and their ability to control that, in many of the areas Wal-mart is expanding into there is very little infrastructure. While creating a distribution network could earn them massive returns, it will require a massive capital expenditure that might ultimately fail as their $1 billion U.S.D. experiment in Germany showed.
Ultimately however I expect the culturally indifferent, poor, and burgeoning/struggling middle class to embrace Wal-mart virtually as a savior, hopefully solidifying Wal-mart as a power house in other countries beyond American shores. Given the current stock price, there is a fairly safe margin to make that guess so I'll be picking up a total position of 5+% of my portfolio at a price less than 54.50. I'll be buying about 50% of that within the next few days and re-evaluate in about two weeks if I should buy the other 50% or more.
Price at time of write up: 54.26
Valuation Ratios:
Price/Earnings (TTM) . . . . . 13.79x
Price/Sales (TTM) . . . . . . . 0.47x
Price/Book (MRQ) . . . . . . . 3.05x
Price/Cash Flow (TTM) . . . . 8.58x
Thomas . . . . . 3/5
Davison . . . . . 5/5: fair value 58
Benjamim . . . . 5/5: Target 63
The general concensus is that Wal-mart is undervalued, but that it's price won't be breaking out any time soon - and that's fine with me. Even if the only price improvements come from share buy backs from the excess cash, I'm more than happy, but I expect it's price not to retreat as much as either the dollar or the S&P500 if the down slope turns into a down turn. Wal-mart is also shifting from trying to increase it's U.S. square footage each year to maximizing the value from the space it already has, which I like, while increasing it's international foot print which I also like. They're also planning on opening more urban locations with a smaller foot print focusing on fresh produce, which is basically good. Except I don't expect significantly increased food prices beyond that created by inflation. In any event, since items tend not to stay on Walmart's shelves for more than 7 days, I look forward to shopping at some of their fresh produce locations to see if they can maintain that edge with food products. Despite that, I expect consumers to continue to act in a price sensitive fashion for the next two to three years, and feel this is a good stock to hold onto for at least 1.5+ years.
At worst I expect wal-mart to perform no better than Coke, but with greater growth potential so it should at least maintain the value of the dollars I put into it. The U.S. expansions will be focused on "hypermarts" (a twist on "super market") and since everyone needs to eat those stores should generate steady revenue from the price sensitive consumer who eats. As a provider of consumer staples and high turn around Wal-mart should be able to weather the substantial inflation in our future since the fed is hell bent on avoiding deflation. Additionally the excellent prices Wal-mart is able to offer in the U.S. is partially based on our infrastructure and their ability to control that, in many of the areas Wal-mart is expanding into there is very little infrastructure. While creating a distribution network could earn them massive returns, it will require a massive capital expenditure that might ultimately fail as their $1 billion U.S.D. experiment in Germany showed.
Ultimately however I expect the culturally indifferent, poor, and burgeoning/struggling middle class to embrace Wal-mart virtually as a savior, hopefully solidifying Wal-mart as a power house in other countries beyond American shores. Given the current stock price, there is a fairly safe margin to make that guess so I'll be picking up a total position of 5+% of my portfolio at a price less than 54.50. I'll be buying about 50% of that within the next few days and re-evaluate in about two weeks if I should buy the other 50% or more.
Comments
Post a Comment