Walmart (WMT) Stock Analysis
Walmart (WMT) has paid a dividend since 1974 and increased its dividend for 48 consecutive years; qualifying the company as a Dividend Aristocrat and Dividend Champion.
Current Dividend Annualized: $2.20
Walmart (WMT) Intrinsic Value – Margin of Safety Analysis
(updated June 2021)
Normalized Diluted Earnings Per Share (TTM): $4.32
Cash Flow From Operations (CFO) Per Share (TTM): $11.23
Free Cash Flow Per Share (TTM): $7.46
Estimated Intrinsic Value: $116
Target Buy Price Based on Required Margin of Safety = $106
(Required Margin of Safety Based On Risk Stability
Grade: A = 10%, B = 20%, C = 30%, D = 40%, F = 50%)
Target SELL Price Based on Estimated Intrinsic Value = $140
(Allow Overvaluation Adjusted by Risk Stability Grade:
A = 20%, B = 15%, C = 10%, D = 5%, F = 0%)
Risk / Stability Grade: A
A grade indicates a quality company with a strong balance sheet, high earnings quality, and a positive business environment. These stocks require the slimmest margin of safety within the stock universe.
B grade indicates a company with a good balance sheet, good earning quality, and a stable business environment. The margin of safety required should be greater than stocks with an A grade but less than the average stock.
C grade indicates a company with a sufficient balance sheet, at least average earnings quality, and a reasonably stable business environment. The margin of safety required is greater than A & B stocks, but less than D & F stocks.
D grade indicates a company in good standing but has issues that could affect its stability and long term risks. D rated stocks should require a large margin of safety when purchased.
F grade indicates a company with significant issues that are currently affecting its stability and long term risks. Require an extremely large margin of safety for F rated stocks when purchased.
Financial Risk Grade: A
A grade indicates an extremely low probability of a dividend cut. This rating is reserved for companies with strong balance sheets and/or excellent dividend histories.
B grade indicates a very low probability for a dividend cut.
C grade indicates a low probability for a dividend cut and/or average safety risk.
D grade indicates there are issues that should be considered concerning future dividend payments.
F grade indicates serious dividend safety risks. Investors should complete comprehensive due diligence before investing.
Earnings Quality Grade: A
A grade indicates earnings quality is high or far above average.
B grade indicates earnings quality is good and/or above average.
C grade indicates earnings quality is acceptable or average.
D grade indicates earnings quality is poor and requires thoughtful due diligence.
F grade indicates the quality of the earnings is poor or far below average requiring serious due diligence.
Earnings Report: 4/30/21
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AAAMP Portfolios Position Disclosures:
Global Value – None
Global Value Aggressive – None
Dividend Growth & Income – None
Global Dividend Balanced – None
Treasure Trove Twelve – None
High Yield Balanced – None
Sector: Consumer Defensive
Industry: Discount Stores
America’s largest retailer by sales, Walmart operates over 11,300 stores under 58 banners, selling a variety of general merchandise and grocery items. Its home market accounted for 76% of sales in fiscal 2019, with Mexico and Central America (6%), the United Kingdom (6%), and Canada (4%) its largest external markets.
In the United States, around 56% of sales come from grocery, 33% from general merchandise, and 11% from health and wellness items. The company operates several e-commerce properties apart from its eponymous site, including Flipkart, Jet.com, and shoes.com (it also owns a roughly 10% stake in Chinese online retailer JD.com). Combined, e-commerce accounted for about 5% of fiscal 2019 sales.
Retail is in a period of disruption. Customers want great prices and the ultimate in convenience. Walmart is investing heavily in people and technology to deliver the shopping experience customers want.
The core business strategy of Walmart is providing customers the quality products they want, when they want it, and at very low prices. They “operate for less, buy for less, sell for less, and grow sales”. The company uses national and private brand options to provide consumers with choices while keeping prices as low as possible.
Walmart is the largest retailer in the world and has unparalleled leverage to extract the best terms from its vendors, suppliers, and manufacturers. Volume purchasing power and massive scale provide cost advantages that provide a wide economic moat.
It’s $420 sales per square foot (versus $290 for Target) is evidence of company efficiency. Approximately 60% of sales come from perishables. This drives traffic to the stores and provides a significant advantage over competitors.
Walmart has made significant improvements to its e-commerce capabilities. The stores are well positioned to compete in a COVID-19 environment and a post virus world.
Walmart employs over 2.3 million people and is facing intense pressure to raise wages. The real risk is that this trend will continue and/or accelerate; putting a significant dent in future earnings.
In the current competitive global market, Wal-Mart will likely need to sacrifice margins (offer low prices) in order to keep market share.
The company is putting new resources into smaller neighborhood markets and e-commerce. Recent acquisitions demonstrate how serious Walmart is about competing in the new digital age of convenience and service.
Competitors such as Amazon and dollar stores are offering lower prices and convenience. Walmart is front and center when it comes to being a target of labor and labor unions.
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While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.