...Valuing Walmart - 2010 Introduction This case requires the valuation of Walmart stock as of February 2010 based on company and market data up to 2010. Determination of the stock value will aid in the decision to recommend Walmart stock as an investment to clients. The valuation of stock is based on estimations of various parameters using various prediction models. Several models are available to aid in estimating stock prices and they are utilized herein. The dividend discount model, future dividends and a terminal value, the three-stage approach and use of P/E ratios are all utilized in this analysis to best determine a buy/hold/sell recommendation for clients. Dividends in Perpetuity The Dividend Discount Model (DDM) is one way to assess the worth of Walmart’s stock price. This model assumes that the current value of Walmart’s stock is the present value of future expected dividends, discounted by the investor’s expected rate of return. A perpetuity is an annuity that has no end, or in other words, a stream of cash payments that continue for an indefinite period of time as seen in Exhibit 1, Figure 1. The perpetuity relationship is stock price is equal to expected dividends divided by the investor’s required rate of return minus the perpetual dividend growth rate as illustrated in Exhibit 1, Equation 1. The input variables needed to calculate the current value of a firm’s stock price are dividend growth, expected dividend, and the investor’s required...
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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 Wal-Mart is a cash cow. During the company's fiscal 2016, which recently ended, the company generated a whopping $27.4 billion in operating cash flow and $15.9 billion in free cash flow. Even more, since this cash flow is so steady and consistent, the company can confidently pay about about two-thirds of its annual free cash flow in dividends. Indeed, the company is confident enough in its free cash flow that Wal-Mart announced earlier this month it would be increasing its annual dividend payout from $1.96 to $2.00. But the brick-and-mortar retailer is facing some challenges when it comes to growing its business. During Wal-Mart's fiscal 2016, the company's revenue declined 0.7%. The decline was attributable primarily to currency headwinds and store closings. Adjusting for currency headwinds, revenue increased 2.8%. Going forward, the sales outlook is even more bleak; the company recently slashed its outlook for fiscal 2017 revenue growth from 3% to 4% to expectations for net sales to be "relatively flat." Amazon.com Amazon stands out as the fast growing company of the two. Sales were up 20% in 2015, easily trumping Wal-Mart's inability to grow its top line. And with Amazon management guiding for 17% to 28% year-over-year revenue growth for the current quarter, the company clearly isn't expecting a deceleration anytime soon. Amazon Stock Beyond growing its top line, Amazon is also recently demonstrating to investors it can beef up its free cash flow. Free...
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...of EPS Industry: Retail $36,903M $33,800M 901.7M 0.59% 3.67M $7.76 19.28% 6.26% 15% EPS Forecast EPS Ratios P/E Forward PEG M/B 1999A $1.28 2000A $1.40 TGT 27.01 1.80 4.84 2001E $1.48 2002E $1.69 12/03/01 Competitor Average 13.28 1.96 4.02 $37.54 $57.46 $43.52 $31.27 $11.03 $16.92 $43.63 12 mo 26 % -14% 24 mo -8% 18% Valuation Predictions Actual Current Price Forward P/E Valuation Forward PEG Valuation M/B Valuation EBO (Abnormal Earnings) Valuation DCF Valuation P/S Valuation Performance of TGT Trailing TGT Relative to S&P500 6 mo -0.1% -10% • • • • • • Target operates in the discount retail industry in its Target stores but also attracts fashion minded customers through its Marshall Field’s and Mervyn’s stores. Target uses it Super Target model as its growth engine and funds this with cash flows from its Mervyn’s operations. Target has also recently partnered with Amazon to develop its online sales and fulfillment. The overall retail industry is growing at 3.8% and is competitive. Those players who can aggressively manage costs are the market leaders. Indicators suggest Target does not manage earnings in any significant way. Our valuations predict a stock price ranging from $11 to $57 per share. Rating System: BUY: A strong purchase recommendation with above average long-term growth potential. MARKET OUTPERFORM: A purchase recommendation that is expected to marginally outperform the return of the market. MARKET PERFORMER: A recommendation to maintain...
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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 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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...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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...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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...companies The competition between Wal-Mart and local supermarkets has become stronger and more vicious. Wal-Mart is so large and worldwide, which grants an advantage in negotiating low prices with many suppliers. However, Local supermarkets such as Comerci, Soriana, and Gigante, do not seem to give up the market so easily. They have already taken several actions to fight Wal-Mart continuously. Unable to get low prices Wal-Mart can get from the suppliers, local supermarkets tried using “high and low” to attract more customers. It is a method of lowering prices of some products but not all products; they have also gone to the federal competition commission with complaints of Wal-Mart’s unfair pricing practices. Later on, Comerci – Wal-Mart’s main competitor, has formed a cooperation called Sinergia with two other struggling homegrown supermarket chains, which would allow them to negotiate better prices with suppliers. Currently, there has been notable success of Soriana, who is attempting to differentiate itself from Wal-Mart by providing products and atmosphere more appealing to middle (income) class consumers. Wal-Mart is also facing ethical and legal issues raised from their recent law suit because Wal-Mart had been paying its employees store coupons as a part of the salary, which forces the employees to shop at Wal-Mart. NAFTA’s Limitations The implementation of NAFTA has greatly reduced the costs of doing business. Wal-Mart has utilized the benefits of NAFTA...
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...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 using the...
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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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...Bulls Eye Analyst A Valuation of Target As of November 1, 2006 Kyle Barkel Kyle.Barkel@ttu.edu Jerry Boroff Jerryjboroff@hotmail.com Ryan Campbell Ryancampbell85@yahoo.com Peter Carini Peter.J.Carini@ttu.edu Leslie Mitchell Leslie.Mitchell@ttu.edu Camille Ricci Camille.N.Ricci@ttu.edu Table of Contents Executive Summary………………………………3 Business & Industry Analysis Company Overview……………………………………...…5 Five Forces Model ……………………………….….6 Competitive Analysis……………………………………...12 Industry Conclusion……………………………………….15 Accounting Analysis Key Accounting Policies………………………………….15 Accounting Flexibility…………………………………….17 Accounting Strategy……………………………………...19 Quality of Disclosure……………………………………..19 Screening Ratio Analysis…………………………..……21 Potential Red Flags……………………………..………..25 Undoing Accounting Distortions…………..………...26 Ratio Analysis and Forecast Financials Financial Ratio Analysis……………………….……….27 Time Series Analysis…………………………...……...28 Cross Sectional (Benchmark) Analysis…….……..32 Financial Statement Forecasting Method..……...47 Analysis and Forecasting Solutions………..……...49 Valuation Analysis Method of Comparables……………………………….50 Cost of Capital…………………………………………….51 Discounted Dividend Models………………………...53 Discounted Free Cash Flows………………………...54 Abnormal Earnings Growth Method……………….55 Discounted Residual Income Method….…………56 LR Average RI Perpetuity Method…………….…..57 Altman’s Z-score………………………………………...59 Enterprise Value/ EBITDA……………………………59 Appendixes Appendix...
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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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...Personal Finance * Entrepreneurs * Contact Us * About Us Is Walmart Stock a Good Buy, Sell or Hold in 2013? Share on facebookShare on Facebook Share on twitterShare on Twitter Share on printPrint Created by Stock Analysis Desk (New York) on 6/02/2013 6:54 PM Walmart Stock Analysis - Is WMT a Good Stock to Buy, Sell or Hold? Wal-Mart (Stock: WMT) recently reported a 1.4% decline in its U.S. comparable (or comp) same-store-sales in Q1 2013. This is the first such decline in 6 quarters of Walmart reporting comp increases. Based on a recent report published by Bloomberg, it appears Wal-Mart is struggling to keep its stores stocked with items that consumers are seeking. As seen in the below chart, Walmart’s tock, WMT, has been lagging behind its main competitors, Costco (COST) and Target (TGT). Given the weakness in global economies, and cautious consumer spending in the U.S. (WMT's biggest market), investors might be wondering whether Walmart stock is a good buy, sell or hold. Does WMT stock still make sense as a good investment or should investors seek better opportunities somewhere else? Let's analyze some of the valuation, fundamental and technical variables to better determine whether Walmart stock is a good buy, sell...
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...Sam Walton founded Wal-Mart in 1962. In 1991, Wal-Mart opened its first store outside of the United States in Mexico City, Mexico. Globalization helped Wal-Mart tremendously. They first tested the idea of selling of groceries, had restaurants, banks, and video stores in Europe and Brazil. At the time that many companies were closing factories in America Wal-Mart developed a program called “Bring it Home To The USA,” in which Wal-Mart was replacing items bought from overseas to buying them in the US. Although the company was using products that were made in the U.S. Wal-Mart was rapidly growing overseas. In 1991 they had only one store in Mexico. By 1998 they had over 600 stores overseas, which accounted for about 5 percent of their growth in sales and profits. Wal-Mart was very successful in the United States but in order for them to survive and grow they had to begin building stores overseas (Govindarajan & Gupta, 2002). Wal-Mart also had so many stores in the United States that their only other option to continue to grow was to move into other countries. Wal-Mart has been able to grow into the number one retailer in the United States. According to Bloomberg, the current Chief Executive Officer (CEO) at Walmart is Michael Terry Duke. Mr. Duke has been the CEO at Wal-Mart Stores Inc. since 2006 (2011). And Bloomberg also reports that Charles M. Holley Jr. is the current Chief Financial Officer of Wal-Mart and has held that position since late 2010. Mr. Holley’s education...
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