Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 10 Most Undervalued Companies for the Defensive Investor – NovemberÂ 2015.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a stock analysis showing a specific look at how Wal-Mart Stores Inc. (WMT)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance): Wal-Mart Stores, Inc. is engaged in the operation of retail, wholesale and other units in various formats around the world. The Company offers an assortment of merchandise and services at everyday low prices (EDLP). The Company’s operations are conducted in three segments: Walmart U.S., Walmart International and Sam’s Club. The Walmart U.S. segment operates retail stores in all 50 states in the United States, Washington D.C. and Puerto Rico, with three primary store formats, as well as digital retail. The Walmart International segment consists of operations in 26 countries outside of the United States and includes numerous formats divided into three main categories: retail, wholesale and other. The Sam’s Club consists of membership-only warehouse clubs and operates in 48 states in the United States and in Puerto Rico, as well as digital retail.
Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is aÂ free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$192,353,227,086||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||0.89||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Pass|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||55.04%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||12.78||Pass|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||2.49||Pass|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||0.89||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||-6.01||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||2.38%|
|MG Value based on 3% Growth||$68.92|
|MG Value based on 0% Growth||$40.40|
|Market Implied Growth Rate||2.14%|
|% of Intrinsic Value||96.35%|
Wal-Mart Stores Inc.Â qualifies for bothÂ theÂ Enterprising InvestorÂ andÂ the more conservative Defensive Investor. Â The Defensive Investor is only initially concerned with the low current ratio. Â The Enterprising Investor is satisfied because the company meets the more stringent Defensive Investor requirements. Â As a result, all value investorsÂ following the ModernGraham approach based on Benjamin Graham’s methods shouldÂ feel comfortable proceeding with further research.
As for a valuation,Â the company appears to be fairly valued after growingÂ itsÂ EPSmg (normalized earnings) from $4.10 in 2012 to an estimated $4.75 for 2016. Â This level of demonstrated earnings growth supportsÂ the market’s implied estimate of 2.14% annual earnings growth over the next 7-10 years.Â As a result, the ModernGrahamÂ valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative toÂ the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects. Â What do you think? Â What value would you put on Wal-Mart Stores Inc. (WMT)? Â Where do you see the company going in the future? Â Is there a company you like better? Â Leave aÂ comment on ourÂ Facebook pageÂ or mentionÂ @ModernGrahamÂ on Twitter to discuss.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$19.07|
|Number of Consecutive Years of Dividend Growth||20|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||Jul15|
|Total Current Assets||$58,132,000,000|
|Total Current Liabilities||$65,262,000,000|
|Shares Outstanding (Diluted Average)||3,231,000,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$4.38|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$4.75|
Other ModernGraham posts about the company
|26 Companies in the Spotlight This Week â€“ 11/22/14|
|Wal-Mart Stores Inc. Annual Valuation â€“ 2014 $WMT|
|ModernGraham Valuation: Walmart Stores Inc. (WMT)|
Other ModernGraham posts about related companies
The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.