Morningstar

Wal-Mart's Profit Slips as Investments Persist

With shares trading at around a 10% discount to our valuation, investors should keep Wal-Mart on their radar screens.

Securities In This Article
Walmart Inc
(WMT)

We don’t expect to materially alter our $76 per share fair value estimate for wide-moat

Taking into account its year-to-date performance and its outlook for the fourth quarter, management raised the low end of its adjusted earnings per share guidance to $4.20-$4.35 from $4.15-$4.35, but our forecast remains within the firm’s revised range. Longer term, we expect Wal-Mart to realize 2% total sales growth and sustain nearly 5% operating margins (versus a 5.8% 10-year historical average) following a moderation in investments the next few years. Shares trade around a 10% discount to our valuation, and we’d suggest investors interested in the space keep Wal-Mart on their radar screens.

Comparable-store sales in the U.S. increased 1.2%, driven by a combination of higher traffic (up 0.7%) and increased average ticket (up 0.5%), with a two-year stack that included a 2.7% comp increase and 2.4% uptick in traffic. This performance marked the ninth consecutive quarter of positive same store sales growth and the eighth consecutive quarter of positive traffic for Wal-Mart U.S. And these results came even as food cost deflation continued to eat into the firm’s results, negatively affecting comps on its home turf by 150 basis points (north of the 110-basis-point unfavorable impact in the second quarter).

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About the Author

Erin Lash, CFA

Sector Director
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Erin Lash, CFA, is a sector director, AM Consumer, for Morningstar*. In addition to leading the sector team, she covers packaged food and household and personal care companies. Beyond managing a team of nine analysts and associates covering an array of consumer firms, Lash also conducts fundamental analysis of 13 multi-billion-dollar market capitalization firms in the packaged food and household and personal care space.

Before joining Morningstar in 2006, Lash spent four years as an investment analyst covering retail, transportation, and technology firms for State Farm Insurance. In this capacity, Lash analyzed financial statements, business strategy, and fundamentals of owned companies and potential investments, presenting her recommendations based on this analysis to State Farm portfolio managers for ownership consideration.

Lash holds a bachelor’s degree in finance from Bradley University’s Foster College of Business. She also holds a master’s degree in business administration, with concentrations in accounting and finance, from the University of Chicago Booth School of Business. Lash has completed the Chartered Financial Analyst® designation. She ranked second in the food and tobacco industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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