Retail Stocks

Walmart Inc Valuation – November 2018 $WMT

Company Profile (excerpt from Reuters): Walmart Inc., formerly Wal-Mart Stores, Inc., incorporated on October 31, 1969, 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 operates through three segments: Walmart U.S., Walmart International and Sam’s Club. The Walmart U.S. segment includes the Company’s mass merchant concept in the United States operating under the Walmart brands, as well as digital retail. The Walmart International segment consists of the Company’s operations outside of the United States, including various retail Websites. The Sam’s Club segment includes the warehouse membership clubs in the United States, as well as samsclub.com. The Company operates approximately 11,600 stores under 59 banners in 28 countries and e-commerce Websites in 11 countries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of WMT – November 2018

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 $283,384,329,093 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.81 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 -6.14% Fail
6. Moderate PEmg Ratio PEmg < 20 23.52 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.58 Fail
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 0.81 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -2.65 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.12
MG Growth Estimate -2.37%
MG Value $15.47
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $59.69
MG Value based on 0% Growth $34.99
Market Implied Growth Rate 7.51%
Current Price $96.84
% of Intrinsic Value 625.79%

Walmart Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $4.89 in 2015 to an estimated $4.12 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.51% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Walmart Inc revealed the company was trading above its Graham Number of $50.28. The company pays a dividend of $2.04 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 23.52, which was below the industry average of 28.23, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-26.41.

Walmart Inc receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$26.41
Graham Number $50.28
PEmg 23.52
Current Ratio 0.81
PB Ratio 3.58
Current Dividend $2.04
Dividend Yield 2.11%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2018
Total Current Assets $69,446,000,000
Total Current Liabilities $85,751,000,000
Long-Term Debt $43,275,000,000
Total Assets $226,583,000,000
Intangible Assets $31,044,000,000
Total Liabilities $147,114,000,000
Shares Outstanding (Diluted Average) 2,941,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.26
Jan2018 $3.28
Jan2017 $4.38
Jan2016 $4.57
Jan2015 $5.05
Jan2014 $4.88
Jan2013 $5.02
Jan2012 $4.52
Jan2011 $4.47
Jan2010 $3.71
Jan2009 $3.39
Jan2008 $3.13
Jan2007 $2.71
Jan2006 $2.68
Jan2005 $2.41
Jan2004 $2.07
Jan2003 $1.79
Jan2002 $1.47
Jan2001 $1.40
Jan2000 $1.19
Jan1999 $0.99

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.12
Jan2018 $4.17
Jan2017 $4.67
Jan2016 $4.82
Jan2015 $4.89
Jan2014 $4.71
Jan2013 $4.49
Jan2012 $4.10
Jan2011 $3.76
Jan2010 $3.31
Jan2009 $3.02
Jan2008 $2.76
Jan2007 $2.50
Jan2006 $2.29
Jan2005 $2.00
Jan2004 $1.73
Jan2003 $1.49

Recommended Reading:

Other ModernGraham posts about the company

Walmart Inc Valuation – February 2018 $WMT
Wal-Mart Stores Inc Valuation – May 2016 $WMT
Dividend Growth Stocks for Intelligent Investors – February 2016
11 Best Stocks For Value Investors This Week – 11/21/15
Wal-Mart Stores Inc. Valuation – November 2015 Update $WMT

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Disclaimer:

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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