1 / 21

WAL-MART ANALYSIS Stock Price Evaluation

WAL-MART ANALYSIS Stock Price Evaluation. Professor Doug Towsey Fin 330 May 29, 2003  Team Members: Cam T. Ashling Jenae M. Brooks Fadi A. Manneh Sapna R. Shah Xin R. Wang . Wal-Mart at a Glance. The world’s largest retailer: 100 million customers per week worldwide

talasi
Download Presentation

WAL-MART ANALYSIS Stock Price Evaluation

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. WAL-MART ANALYSISStock Price Evaluation Professor Doug Towsey Fin 330 May 29, 2003  Team Members: Cam T. Ashling Jenae M. Brooks Fadi A. Manneh Sapna R. Shah Xin R. Wang

  2. Wal-Mart at a Glance The world’s largest retailer: • 100 million customers per week worldwide • 1.3 million employees • 3,200 locations in the United States • 1,100 locations in Mexico, Puerto Rico, Canada, Argentina, Brazil, China, Korea, Germany, and the United Kingdom • $218 billion in sales 2002

  3. Industry Outlook • Household products, retail drugs stores, and personal care segments are expected to produce above-average revenue growth and earnings in the coming months • Operating earnings are expected to rise 4% to 5% in 2003 • The retail industry is expected to perform in line with the overall market in the next 6-12 months

  4. Porter’s Five Forces

  5. Power of Suppliers • Wal-Mart is the largest customer to companies like Kraft Foods, Gilette, and P&G • It has buyer advantages, such as favorable payment terms, discounts, and priority delivery dates Power of Buyers • Wal-Mart is not monopolistic • Buyers have bargaining power

  6. Barriers to Entry • High cost of constructing a large discount facility • Barriers to entry do exist • But it is possible to raise the capital for such a project

  7. Availabilities of Substitutes • Wal-Mart’s major competitors include Target, K-mart, Costco, Dollar General and other discounters • Substitutes are available but Wal-Mart tends to build in locations where they eat up small competitors • Leaving little room for other large competitors

  8. Price/Earnings Industry Average 25.82 2003 Jan 2, 2003 $51.60 / 1.81 = 28.51 2002 Jan 2, 2002 $58.05 / 1.49 = 38.96 2001 Jan 2, 2001 $53.88 / 1.41 = 38.21

  9. Price to Book Value Industry Average 5.15 2003 Jan 2, 2003 $51.60 / $8.89 = 5.8 2002 Jan 2, 2002 $58.05 / $7.86 = 7.38 2001 Jan 2, 2001 $53.88 / $7.02 = 7.67

  10. Profitability Ratios • After-Tax margin: • Five-year average for Wal-Mart is 3.22% • Industry average is 3.48% • Primary reason is because of low prices. So, the profitability strategy is to generate mass turnover to compensate for lower profit margins • Return on Equity : • The five years average on ROE for Wal-Mart is 22.23% • Industry norm has been 20.68% • This shows that it has been positive and is reflected by a higher income per share issued

  11. Asset-Utilization Ratios • Receivable Turnover: • The recent asset turnover 115.99 x • Industry average is 10.97 x • Portrays efficiency and strength of Wal-Mart • Inventory Turnover: • Recent inventory turnover is 9.82 x • Industry average 6.21 x • Wal-Mart has shown superior strength in their ability to “clear their shelves” faster than most other competitors in their industry • Total Assets Turnover • Most recent is 2.58 x • Industry average is 2.4 • Shows strong ability to have return on sales in relation to assets

  12. Liquidity/ Debt-Utilization Ratios • Current Ratio • Wal-Mart 5-year average is .94 • Industry average is 1.20 • Greater chance to go into liquidation • Quick Ratio • Five-year average is .19 • Industry average that is .36 • Caused by high investment in inventory • Long-term debt to equity • Most recent is .4222 • Industry average is .63 • Better in terms of risk involved and more flexibility

  13. Valuation Models • Constant Growth Model • Non-Constant Growth Model • Income Statement Method • Combined Earnings & Dividend Model • Price Averaging Ratios

  14. CAPM • CAPM is used to derive the cost of equity, which is need to develop the valuation models Ke = Rf +ß(Km-Rf) = 3.43% + .89 (8.3%) = 10.817%

  15. Constant Growth Model • Po = D1/(Ke-g) • Po = .32 /(10.817% -12%) • This model cannot be used because the cost of equity is less than the expected growth rate as given by Value-Line.

  16. Non-Constant Growth Model

  17. Income Statement Method

  18. Combined Earnings & Dividend Model

  19. Price Average Ratios

  20. Price Average Ratios Cont.

  21. Recommendation Buy Wal-Mart (WMT) now • Reasons: • Price Ratios trade at 28 x higher than industry • High reinvestment opportunities can be seen through low dividend yield • Seems to have a robust management system • A strong use and standing in Porter’s Five Forces • All valuation models that did not include dividends show that it is undervalue

More Related