...Running head: THE VALUATION OF WAL-MART 1 THE VALUATION OF WAL-MART 2 In fiscal year 2010, Wal-Mart stock sold for a 52-week high of $55.01 and a 52-week low of $46.42. Stock in the company was regularly recommended as a “buy” or a “hold” by analysts, according to Bloomberg L. P. However, with dividend payment of only $1.09 per share on earnings of $3.72, a payout of only 29%, far lower than the industry payout rate at maturity of 45%. The result of this low dividend payout has Sabrina Gupta, a stock analyst, reevaluating the actual value of Wal-Mart stock as a recommendation to new or existing clients. Wal-Mart was built to save people money and make their lives better. Its business model has made Wal-Mart dominant. It beats out its competitors by offering a variety of products for competitive prices. It consistently plans expansion into metropolitan and international areas. Wal-Mart focuses on cutting their expenses at a rate that exceeds revenue growth so income will grow faster than revenue. The returns are distributed to the company’s investors. Wal-Mart has paid out dividends since its first stock offering in 1974, payouts ranged from 5.6% in 1974 to 29.3% in 2010. Over the last eight years, the payout percentage increased 12.5%. Analysis In the previous four years, the Wal-Mart stock continued to grow and fare well in the market. Since 1974, Wal-Mart’s annual earnings gained an average of 25% yearly, although growth has slowed to between...
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...This paper is examining Wal-Mart Stores, Inc. and analyzing the value of its stock to make a buy/sell recommendation. The valuation is based on a variety of techniques to price the shares and then compare the intrinsic value with the currently trading market price: Dividend Discount model, CAPM, Three-Stage Approach and the Price/Earnings Multiple Approach. Executive Summary Founded by Sam Walton, Wal-Mart is the largest retailer in the world providing a huge assortment of merchandise, electronics, hardware and groceries at “everyday low prices”. 2010 Wal-Mart’s net sales were more than $405US billion. Wal-Mart had an initial stock price of $16.50/share in 1970. Since then Wal-Mart’s dividend went up to $1.09/share in 2010 after it had undergone 11 two-for-one stock splits. Wal-Mart’s recent closing price was $53.48. According to Bloomberg, Wal-Mart’s stock were ranked as “buys’ by 20 analyst – can we justify this recommendation or does our valuation have a different outcome? Valuation: Utilizing the DDM, the current stock price of Wal-Mart is equal to the PV of all expected future dividends discounted at an investor’s required or expected rate of return: The case provides a consensus annual Wal-Mart dividend for 2011 of $1.21(D1) and an expected constant dividend growth of ≈5.0% (g). To calculate the current price (Po), we need to come up with (Ke). Since we do not have the investor’s required rate of return we can use the CAPM to calculate an expected rate of return. The...
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...Summary - Valuing Wal-Mart In utilizing the fundamental data provided by the 2010 Richard Ivey School of Business Foundation article titled Valuing Wal-Mart - 2010, I have made the following conclusions regarding the value of Wal-Mart (WMT) stock as of February 2012. * Utilizing the constant growth dividend discount model (DDM), the value of Wal-Mart’s stock price is $60.20. The most recent closing price of Wal-Mart stock was $53.48. Given this information, the constant growth DDM valuation suggests that the Wal-Mart stock is currently undervalued. * Utilizing the two-stage DDM approach, the value of Wal-Mart’s stock price is $83.95. Similar to the constant growth DDM valuation conclusion, the Wal-Mart stock is currently undervalued. * The capital asset pricing model (CAPM) was used to determine the appropriate required rate of return on Walm-Mart’s stock. The required rate of return for Wal-Mart is 7.01% * In following the concepts of the price/earnings (P/E) multiple approach, Wal-Mart’s intrinsic value based upon the P/E multiple approach is $55.03. Given the current stock price of Wal-mart of $53.48, this valuation would support that Wal-Mart’s stock is undervalued. *Several assumptions were made within the various valuation methods. The assumptions are noted and defined within each of the following sections. In summary, in employing the dividend discount valuation methods and price/earnings multiple approach, the Wal-Mart stock would be a “buy”...
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...Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. The company operates in three segments: Walmart U.S., Walmart International, and Sam's Club. It operates retail stores, restaurants, discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, apparel stores, Sam’s Clubs, neighborhood markets, and other small formats, as well as walmart.com; and samsclub.com. Wal-Mart’s main strategy is to provide customers with everyday low prices. It is known for its discount stores. Wal-Mart’s competitors are Sears, Target, Gap, limited, Dillard’s, Macy’s and JC Penny. The major membership only warehouse competitor is Costco Wholsale. Wal-Mart became a publicly traded firm in 1970 with an initial stock price of $16.50 per share and subsequently, in March 1974, declared its first cash dividend of $0.05 per share (after two two-for-one stock splits). It had undergone 11 two-for-one stock splits, and thus, an original lot of 100 Wal-Mart shares had grown to 204,800 shares after the most recent split in April 1999. For this valuation we will be using the dividend discount model, the capital asset pricing model (CAPM) and price/earnings multiples. Dividend Discount Model (DDM) In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go...
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...|Wal-Mart Stores, Inc. (WMT) |February 25, 2006 | |Hold | |WMT: Competitive and Financial Analysis | |By: Ryan Hummer | Company Profile Wal-Mart Stores, Inc. (Wal-Mart) operates retail stores in various formats worldwide. The Company organizes its business into three principal segments: Wal-Mart Stores, SAM'S CLUB and International. The Wal-Mart Stores segment is the largest segment of Wal-Mart's business, accounting for 67.3% sales during the fiscal year ended January 31, 2005 (fiscal 2005). The segment consists of three different retail formats, all of which operate in the United States. The Company's SAM'S CLUB segment consists of membership warehouse clubs that operate in the United States, and accounts for 13% of fiscal 2005 sales. The international segment consists of retail operations in eight countries and Puerto Rico, and generated 19.7% of Wal-Mart's fiscal 2005 sales. In addition, the Company owns an unconsolidated...
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...to break down stock performance in ways that help distinguish solid growth from inflated expectations. Case Study in Rising Prices: Wal-Mart A stock's price is determined by its fundamentals (how the company has actually performed) combined with its valuation (how much the market is willing to pay for that performance and the promise of future growth). Similarly, when a stock's price goes up, that rise comes from either (1) growth in the underlying business or (2) an increase in the stock's valuation, as the market becomes more optimistic about the company's future. As an illustration of these two drivers of stock performance, consider the history of Wal-Mart WMT. In the 1970s and 1980s, Wal-Mart was the quintessential growth stock. It was profitable, with returns on equity consistently above 20%. Year after year, its revenue and earnings grew by more than 25%, often by more than 30%, as it opened new stores all over the country. As a result of this consistent growth, the annualized return of Wal-Mart's stock from 1970 to 1990 was about 35%. That's an impressive figure, but most of this return came from solid growth in revenue and earnings; Wal-Mart's valuations increased only modestly during this time. In the early 1990s, this growth began to slow as the retailing giant started running out of places to expand in the United States. The number of new Wal-Mart stores barely inched up in 1994, after routinely...
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...S w 9B11N004 VALUING WAL-MART - 20101 Cyrus Zahedi wrote this case under the supervision of Professor Jim Hatch solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca. Copyright © 2011, Richard Ivey School of Business Foundation Version: 2011-03-15 In early February 2010, Sabrina Gupta, an investment advisor with a major brokerage firm, was examining Wal-Mart Stores, Inc. (Wal-Mart) stock and its valuation. Gupta wondered whether to recommend the stock to any of her new clients or to existing clients who did not currently have Wal-Mart in their portfolios. BACKGROUND OF WAL-MART STORES, INC. Based in Bentonville, Arkansas, and founded by the legendary Sam Walton, Wal-Mart was the world’s largest retailer, operating more than 8,400 stores worldwide...
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...Looking Into WAL-MART The Company Every week, 100 million customers visit Wal-Mart stores worldwide, making it the world’s largest retailers. A leader in the discount industry, Wal-Mart posted $218 billion in sales last year as it continued to specialize in selling discounted household goods. The company has 1.3 million employees working at 3,200 locations in the United States and 1,100 locations in Mexico, Puerto Rico, Canada, Argentina, Brazil, China, Korea, Germany, and the United Kingdom. Wal-Mart aims to instill its logo, “Everyday Day Low Prices” in each and every division. Currently the company is broken down into four divisions: Wal-Mart Supercenters, Discount Stores, Neighborhood Markets and SAM’S Club Warehouses. The magnitude and global presence of Wal-Mart allows it to be a dominant player in the retailing market place. It is essential that fundamental relationships within the industry and the company’s environment need to be analyzed in order to efficiently evaluate the correct market price for the company’s stock (WMT (NYSE)). Industry Outlook Household products, retail drugs stores, and personal care segments are expected to produce above-average revenue growth and increase market share in the coming months. The uncertainty between the U.S. and global economies should not affect the sector because many of the products are basic necessities. The retail sector is expected to perform in line with the overall market in the next 6-12 months...
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...Wal-Mart Case Valuing Wal-Mart Stock Questions: 1. Assess the financial health of Wal-Mart based on an analysis of the financial statements. 2. Based on any additional available information (including annual reports and 10-K filings) assess the economic conditions (as of the time of the case), the industry key success factors and competitive situation, and Wal-Mart’s strengths and weaknesses. 3. Develop a pro forma income statement and balance sheet for Wal-Mart for the fiscal year ending January 31, 2006. Assume the following (in addition to information in the case): selling, general and administrative expenses at 17.3 percent of anticipated net sales; interest on debt at an average rate of four percent; similar number of shares outstanding as of January 31, 2005: similar prepaids, other assets, accrued liabilities, deferred taxes and minority interest as in 2005. State any other key assumptions. How profitable do you anticipate Wal-Mart will be? Will Wal-Mart need to increase its reliance on external borrowing? 4. Determine the intrinsic value of Wal-Mart (on a per share basis) using the dividend discount model (DDM). Assess the value based on three forms of the DDM: the constant growth version, an assessment based on three years of projected dividends and a projected future stock price, and the three-stage DDM. Clearly state any assumptions including an estimation of Wal-Mart investor required returns. 5. Determine the intrinsic value of Wal-Mart (on a per share basis)...
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...Management 2014 Graded case 1: Valuing Wal-Mart Read the case material (case 906N09) regarding Wal-Mart's stock. The situation described is that of early 2006. We'll first analyse Wal-Mart at that point in time, and later compare how the analysis made with data up to 2005 holds up 8 years later. Use the data provided in the case unless stated otherwise. If you want to use extra data, feel free to do so (it might be rewarded if it contributes to the quality of your answers!) but mention this explicitly, with reference to your source(s). Prepare a report (this will be handed in through Blackboard, the exact procedure will be posted there) that answers the following questions. Show your calculations in the report! I. Regarding the situation at the start of 2006: A.Value Wal-mart's stock using the dividend discount model. Include in your answer valuations based on the following assumptions: 1. constant growth of dividends; use the data in exhibit 3. 2. a multi-stage development of dividends (analogous to the three-stage approach by Bloomberg mentioned in the case) For both models, use both an 8% and a 9% discount rate. Comment on the differences. B. Assuming Wal-Mart (to be precise, its revenue) keeps growing at 13.7% a year, and the US economy grows at 3% a year, in which year would Wal-Mart be bigger than the US economy? (assume that the size of the US economy in 2006 was $ 12500 billion). What are the implications of this curious bit of information? C. Determine Wal-Mart's stockvalue...
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...Wal-Mart Financial Analysis Well everyone knows the history of Walmart, the great American success story, or do you? Let me fill you in. In 1950s Sam Walton opened his first store in Arkansas with the believe in fair play and providing American produce goods at low prices and undercutting his competition by keeping his profit margin even lower. Mr. Walton was able capitalize on this philosophy through cultivate his business and leveraging capital by means of encouraging managers and associates to take advantage of his situation and become stakeholders thereby inspiring the manager’s and associates to improve their skill sets and take ownership and pride in the business. In the 60’s, the first true Wal-Mart open its doors permanently. By the 80’s Walmart was a billion dollar company with stores operating across 28 states. (http://walmart1percent.org/) Today Wal-Mart is the largest corporation in the world employing 2.3 million people (Dun & Bradstreet, 2014, para. 1) However todays Wal-Mart does not share Sam Walton visions or his values. Today Wal-Mart does whatever it needs to maximize revenue at the expense of its employees and customers. Today’s Wal-Mart has little or no respect for their employees. For the majority of their employees’ wages lower than their closest competitors (Costco and Target) since Wal-Mart encourage their employees to get on government funded programs such as food stamps, Medicaid, and public housing thereby passing some of their overhead...
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...Wal Mart Valuation Wal-Mart 2010 Case Study Dividend in perpetuity For this model we use this formula : Expected dividends (D) divided by the investor’s required rate of return (Ke) minus the perpetual dividend growth rate(g). P = D/(Ke-g) The case tell us about each of the inputs : the dividend growth, the xpected dividend, and the investor’s required rate of return. We know that one respected analyst figure out that the constant perpetual dividend growth is g=5.0%. We also know that the consensus annulal Wal-Mart dividend for fiscal year 2011 was D= $1.21 And to calculate the investor’s required rate of return (Ke) we can use the CAPM : Risk free rate : 3.68% Beta of Wal-Mart : 0.66 Market risk premium : 5.05% So the CAPM gives us : Ke= 0.0368+ 0.66*0.0505= 7.013% So we have P= 1.21/(0.07013-0.05)= $60.11 We know that February 2010 closing price was $53.48 per share so it means that Wal-Mart is slightly undervalued. So it is a good investment opportunity. Dividends and a terminal value. In this method we forecast the futur dividends (which we know assuming the constant perpetual dividend growth is g=5.0%) until the futur stock price P(n). We call this price the terminal value. The formula is : P(0)= D(1)/(Ke+1)+D(2)/(Ke+1)^2+….+D(n)/(Ke+1)^n+P(n)/(Ke+1)^n The further we go in years the bigger become the (Ke+1)^i part of the formula and the smaller become the D(i)/(Ke+1)^i. It tend to be 0. Let’s say we forecast the dividends for the next...
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...Financial Ratios 5 Bond Valuation 5 Wal-Mart vs. Target Competitor Analysis 7 Stock Valuation 7 Capital Budgeting 10 Cost of Capital and Capital Structure 12 Conclusion 13 References 13 Appendix 13 Company Background Wal-Mart Stores, Inc. (NYSE: WMT) Sam Walton founded Wal-Mart Stores, Inc. in 1962. Wal-Mart is a family-owned business that operates through many generations of Sam Walton’s heirs, who own over 50% of Wal-Mart through their holding company, Walton Enterprises. Today, Wal-Mart is led by Chairman, Greg Penner, the grandson-in-law of Sam Walton and President and Chief Executive Officer, Doug McMillon and headquartered in Bentonville, Arkansas. Wal-Mart’s brand and low price strategy, ‘Every Day, Low Prices’ prides itself on making a difference in customers lives, helping communities save money and live better domestic and international. Wal-Mart operates 11,532 stores in all 50 states, across 28 countries and 11 e-commerce websites. Each week nearly 260 million customers visit stores or websites (via online and mobile). Many of its brick-and-mortar stores, operate 24 hours a day, seven days a week and consumer products range from a variety of groceries, electronics, sporting goods, clothing, home improvement products, pet supplies, pharmacy and most everything in between. In 2015, Wal-Mart generated the highest sales in its grocery division at 60% of $288 billion dollars in revenue. Over the past several years, Wal-Mart has enhanced its growth...
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...nice case study |Bull Story |Bear Story | |Financial Strength and Stability |Economy Changes Discretionary Spending | |Dominant Market Position |May Not be Embraced Overseas | |Asset Play: own about 70% of properties |Large Debt | |Innovation Efforts | | Table of Contents |Company Overview | |3 | |Company History | |3 | |Recent History ...
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...1. What were the possible synergies and forces propelling the merger between P&G and Gillette – as well as the history of other takeover attempts? Procter & Gamble, P&G, is a famous company in the world because it was established in 1837 and made soap and candles to sell in U.S. government during civil war. Its stores located in more than 80 countries and this company has more than 300 brands such as pampers, Tide, and Pantene. Its products include cleaning agents, pet foods, and personal care products, as well as products for beauty and health care. It is very easy to see its products in the stores. In fact, Gillette is also a famous brand and was established in 1901. Its products include personal care and batteries. When I see Gillette, I will remember men’s safety razors and its slogan is "The Best a Man Can Get". Based on my research, it is up to 90 percentages of people using its products U.S. market and it accounts for 70% in the global. It shows that Gillette sells men’s safety razors well. In my opinion, Procter & Gamble and Gillette are good companies. In fact, they sell very similar products. I think that if they merge together, it will be a complete company. First, the most of consumer of P&G are women, so its major products are sell women’s products. However, Gillette’s products are men’s products, so its goal and marketing are men’s market. Those companies have couple of great brand which can earn over 10 billion in one year. For example...
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