Each Tuesday we will do a detailed analysis of one of the companies in our valuation database. This week’s featured company is Wal-Mart Stores Inc (WMT).
Company Profile (obtained from Google Finance): Wal-Mart Stores, Inc. (Wal-Mart) operates retail stores in various formats worldwide. The Company provides an assortment of merchandise and services. Wal-Mart operates in three business segments: Walmart U.S., International and Sam’s Club. The Company’s Walmart U.S. segment accounted for 63.7% of its net sales, during the fiscal year ended January 31, 2009, (fiscal 2009), and operates stores in three different formats in the United States, as well as Wal-Mart’s online retail operations, walmart.com. As of January 31, 2009, its International segment consisted of retail operations in 14 countries and Puerto Rico. This segment generated 24.6% of the Company’s net sales in fiscal 2009. Its Sam’s Club segment consists of membership warehouse clubs in the United States and the segment’s online retail operations, samsclub.com. Sam’s Club accounted for 11.7% of net sales in fiscal 2009. In January 2009, the Company acquired 57% of D&S S.A.
Business and Management Review
1) Is the business simple and understandable?
Walmart’s business plan is one of the oldest running business plans in human history – buy products cheaply and sell them for more than you paid. As the general store of our generation, Wal-Mart focuses on buying many products from suppliers (thus getting a discount by buying in bulk) and selling them for a slim margin in order to undercut competitors.
2) Does the business have a consistent operating history?
Walmart has always been a company focused on providing discounted products to its customers. The operating strategy has not changed over time though it has evolved to include ever more variety in the products offered for sale (i.e. addition of groceries). Financially, the company has been stable and has achieved growth in annual net income for at least the last 10 years. In addition, Walmart has paid a dividend since 1974.
3) Does the company have favorable long term prospects?
In the long-term, Walmart appears to have strong potential for continued success both domestically and internationally. Specifically, the company continues to open new stores in the United States, having opened approximately 300 storefronts in the last few years. We see additional growth opportunities through the transitioning of many regular discount stores to supercenters (addition of grocery section), and the possibility of adding more Sam’s Club locations to the line-up. Overseas, we see great potential for growth as many economies continue to develop.
4) Is management rational?
We believe the management of Walmart has remained focused to the long-term strategies and goals of the company and is pursuing rational opportunities worldwide.
5) Is management candid with its shareholders?
Walmart’s Investor Relations/About Us website has slightly more information that most, and we believe the management is being candid with the shareholders.
Data of Interest
Our Valuation: You can view our quantitative valuation following Benjamin Graham’s formula and guidelines from The Intelligent Investor on this page: Walmart Stores Inc (WMT) Valuation