Wal-Mart Stores Inc. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.
Wal-Mart Stores Inc.’s analysis versus peers uses the following peer-set: Amazon.com, Inc. (NASDAQ:AMZN), Costco Wholesale Corporation (NASDAQ:COST), Target Corporation (NYSE:TGT), Dollar General Corp. (NYSE:DG), Macy’s, Inc. (NYSE:M), Kohl’s Corporation (NYSE:KSS), Dollar Tree, Inc. (NASDAQ:DLTR), Family Dollar Stores, Inc. (NYSE:FDO), Sears Holdings Corporation (NASDAQ:SHLD) and J.C. Penney Company, Inc. (NYSE:JCP). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
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| Quarterly (USD million) | 2012-10-31 | 2012-07-31 | 2012-04-30 | 2012-01-31 | 2011-10-31 |
|---|---|---|---|---|---|
| Revenues | 113,929.0 | 113,534.0 | 112,272.0 | 122,285.0 | 109,516.0 |
| Revenue Growth % | 0.3 | 1.1 | (8.2) | 11.7 | 0.8 |
| Net Income | 3,635.0 | 4,016.0 | 3,742.0 | 5,194.0 | 3,344.0 |
| Net Income Growth % | (9.5) | 7.3 | (28.0) | 55.3 | (12.0) |
| Net Margin % | 3.2 | 3.5 | 3.3 | 4.2 | 3.1 |
| ROE % (Annualized) | 20.2 | 23.1 | 21.3 | 30.0 | 19.8 |
| ROA % (Annualized) | 7.2 | 8.2 | 7.7 | 10.7 | 6.9 |
Valuation Drivers
Wal-Mart Stores Inc. currently trades at a higher Price/Book ratio (3.1) than its peer median (2.3). WMT-US’s operating performance is higher than the median of its chosen peers (ROE of 23.5% compared to the peer median ROE of 18.9%) but the market does not seem to expect higher growth relative to peers (PE of 14.1 compared to peer median of 15.7) but simply to maintain its relatively high rates of return.
The company’s median net profit margins of 3.6% and relative asset efficiency (asset turns of 2.3x compared to peer median of 1.7x) give it some operating leverage. Wal-Mart Stores, Inc. (NYSE:WMT)’s net margin is similar to its five-year average net margin of 3.5%.
Economic Moat
Wal-Mart Stores, Inc. (NYSE:WMT)’s revenues have changed in-line with its peers (year-on-year change in revenues is 5.9%) but its earnings have lagged (annual reported earnings have changed by 2.7% compared to the peer median of 4.8%), implying that the company has less control over its costs relative to its peers. WMT-US is currently converting every 1% of change in revenue into 0.5% change in annual reported earnings.
Wal-Mart Stores, Inc. (NYSE:WMT)’s return on assets is above its peer median both in the current period (8.3% vs. peer median 6.3%) and also over the past five years (8.4% vs. peer median 6.1%). This performance suggests that the company’s relatively high operating returns are sustainable.
The company’s gross margin of 26.3% is around peer median suggesting that WMT-US’s operations do not benefit from any differentiating pricing advantage. In addition, Wal-Mart Stores, Inc. (NYSE:WMT)’s pre-tax margin of 5.5% is also around the peer median suggesting no operating cost advantage relative to peers.
Growth & Investment Strategy
While WMT-US’s revenues growth has been below the peer median in the last few years (3.4% vs. 4.7% respectively for the past three years), the market still gives the stock an about peer median PE ratio of 14.1. The market seems to see the company as a long-term strategic bet.
WMT-US’s annualized rate of change in capital of 5.1% over the past three years is higher than its peer median of 1.9%. This investment has generated an above peer median return on capital of 13.1% averaged over the same three years. Evidently, the relatively high capital investment was successful given the the relatively strong growth in its returns.
Earnings Quality
WMT-US’s reported net income margin for the last twelve months is around the peer median (3.6% vs. peer median of 4.1%). However, the company has also recorded a relatively low level of accruals (2.3% vs. peer median of 3.7%) which suggests possible overstatement of its reported net income.
WMT-US’s accruals over the last twelve months are around zero. However, this modestly positive level is also less than the peer median which suggests some amount of building of reserves.
