Wal-Mart Stores Inc. Valuation – November 2015 Update $WMT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Wal-Mart Stores Inc. (WMT) fares in the ModernGraham valuation model.

Company Profile (obtained from 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.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of WMT – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

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

WMT value Chart November 2015

EPSmg $4.75
MG Growth Estimate 2.38%
MG Value $63.07
Opinion Fairly Valued
MG Value based on 3% Growth $68.92
MG Value based on 0% Growth $40.40
Market Implied Growth Rate 2.14%
Current Price $60.77
% of Intrinsic Value 96.35%

Wal-Mart Stores Inc. qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  The Defensive Investor is only initially concerned with the low current ratio.  The Enterprising Investor is satisfied because the company meets the more stringent Defensive Investor requirements.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.10 in 2012 to an estimated $4.75 for 2016.  This level of demonstrated earnings growth supports the market’s implied estimate of 2.14% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Wal-Mart Stores Inc. (WMT)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

WMT Charts November 2015

Net Current Asset Value (NCAV) -$19.07
Graham Number $49.17
PEmg 12.78
Current Ratio 0.89
PB Ratio 2.49
Dividend Yield 3.21%
Number of Consecutive Years of Dividend Growth 20



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Most Recent Balance Sheet Figures

Balance Sheet Information Jul15
Total Current Assets $58,132,000,000
Total Current Liabilities $65,262,000,000
Long-Term Debt $42,843,000,000
Total Assets $198,620,000,000
Intangible Assets $17,799,000,000
Total Liabilities $119,749,000,000
Shares Outstanding (Diluted Average) 3,231,000,000

Earnings Per Share History

Next Fiscal Year Estimate $4.38
Jan15 $5.05
Jan14 $4.88
Jan13 $5.02
Jan12 $4.52
Jan11 $4.47
Jan10 $3.71
Jan09 $3.39
Jan08 $3.13
Jan07 $2.71
Jan06 $2.68
Jan05 $2.41
Jan04 $2.07
Jan03 $1.79
Jan02 $1.47
Jan01 $1.40
Jan00 $1.19
Jan99 $0.99
Jan98 $0.78
Jan97 $0.67
Jan96 $0.60

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.75
Jan15 $4.89
Jan14 $4.71
Jan13 $4.49
Jan12 $4.10
Jan11 $3.76
Jan10 $3.31
Jan09 $3.02
Jan08 $2.76
Jan07 $2.50
Jan06 $2.29
Jan05 $2.00
Jan04 $1.73
Jan03 $1.49
Jan02 $1.29
Jan01 $1.13
Jan00 $0.95

Recommended Reading:

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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