Wal-Mart Stores (WMT)

SSG and PERT A (17 Dec 2005) | Google “stocks: wmt” | Company Website

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats in the United States and internationally. It has two segments: The Wal-Mart Stores and The SAM’S CLUB. The Wal-Mart Stores segment includes Discount Stores, Supercenters, and Neighborhood Markets in the United States, as well as Walmart.com. As of July 31, 2005, Wal-Mart operated 1,276 Wal-Mart stores, 1,838 Supercenter, 92 Neighborhood Markets, and 556 SAM’s Clubs in 50 states in the United States. The company operates various retail formats in Argentina, Brazil, Canada, Germany, Mexico, Puerto Rico, South Korea, and the United Kingdom.

Growth. Value Line projects 3-5 year revenue growth of 12.5% and EPS growth of 13.5%. Reuters reports an analysts consensus EPS growth of 13.7% (based on 16 analysts). M* projects future growth to decline from 13% to 10%. The attached stock selection guide (SSG) assumes revenue growth of 11% and EPS growth of 11.4%. This resulting in a 5-yr EPS of $4.40.

Quality. Wal-Mart is a high quality company. Part 1 of the SSG shows very consistent revenue and earnings growth. From Part 2 of the SSG we see that Wal-Mart has averaged a 20% return on equity over the last five years. Part 2 of the SSG and the PERT chart, and PERT graph (see attached SSG), show consistent pretax margins slightly over 5%. M* gives Wal-Mart a stewardship grade of A. Value Line rates Wal-Mart financial strength A++ and earnings predictability of 100. That is as good as it gets. The Robertson quality rating is 82.3.

Valuation. Wal-Mart has a projected average return (PAR) of 14.3% and total return of 18.2%. See SSG. (Manifest Investing projects PAR as 14.35%.) U/D ratio for Wal-Mart is 10 to 1 and the buy price using 25%-50%-25% zoning is $60.30. (Current price is $49.27.) M* rates Wal-Mart undervalued with five stars.