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Shares of Wal-Mart (WMT) fell some 3.6% in Thursday's trading session. The US's largest retailer reported disappointing third quarter results for its fiscal 2013 before the market open.

Third Quarter Results

Wal-Mart reported third quarter revenues of $113.9 billion, up 3.4% on the year. A strong dollar had a negative currency impact of approximately $1.7 billion, or 1.5%. Net sales, which exclude membership fees came in at $113.2 billion, falling short of analysts' expectations of $114.9 billion.

Comparable sales growth in the US came in at 1.5%, while Sam's Club reported comparable sales growth of 2.7%. International sales were up 2.4% to $33.2 billion, but were up 7.6% in constant currencies.

Income from continuing operations rose 8.7% to $3.6 billion. Diluted earnings per share rose 11.3% to $1.08 per share, at the high end of the guided range of $1.04-$1.09 per share. Analysts expected the company to earn $1.07 per diluted share.

Earnings rose as the effective tax rate fell to 31.3%. Wal-Mart took one time expenses including a $69 million charge related to employment claims in Brazil, and a $36 million charge related to Sandy.

CEO Mike Duke commented on the results, "We're very pleased with our financial performance for the third quarter and the dedication and hard work of our associates serving Walmart customers and communities around the world. Our disciplined approach to operating the business and the productivity loop drove profitability and expense leverage. Our fundamentals are strong, and we are well-positioned for the fourth quarter, including innovative plans to drive traffic, especially in our U.S. stores."

Outlook

For the current fourth quarter of its fiscal 2013, Wal-Mart guides for diluted earnings per share from continuing operations of $1.53-$1.58 per share. This compares to last year's earnings of $1.51 per diluted share which included a one-time gain of $0.07 per share.

Consequently, Wal-Mart narrowed its annual earnings per share forecast to $4.88-$4.93 per share.

Duke commented on the near term outlook, "Current macroeconomic conditions continue to pressure our customers. The holiday season is predicted to be very competitive, but we are well prepared to deliver on the value and low prices our customers expect."

Valuation

Wal-Mart ended its third quarter with $8.6 billion in cash and equivalents. The company operates with $54.2 billion in short and long term debt, for a net debt position of $45.6 billion.

For the first nine months of its fiscal 2013, Wal-Mart generated $341.2 billion in revenues. The company reported a net income of $11.4 billion with diluted earnings per share coming in at $3.35 per share. The company is on track to generate annual revenues approaching $470 billion. The company could earn around $16.5 billion, or $4.90 per diluted share.

Factoring in a 3.6% decline on Thursday, the market value Wal-Mart at $231 billion. This values the company at roughly 0.5 times its fiscal 2013s annual revenues. The company is valued at approximately 14 times guided annual earnings.

Wal-Mart currently pays a quarterly dividend of $0.40 per share, for an annual dividend yield of 2.3%.

Investment Thesis

Year to date, shares of Wal-Mart have risen some 15%. Shares traded around the $60 mark during the first half of the year, before they started advancing after a strong second quarter guidance. Shares peaked at $77 in October, but have fallen back some 10% currently exchanging hands at $69 per share.

Shares have traded between roughly $40 and $60 per share over the past decade, before breaking out towards the upside earlier this year. Recently Wal-Mart set new all time highs, but shares have fallen back a bit recently. Between its fiscal 2009 and 2013, Wal-Mart grew annual revenues from $404 billion to an estimated $470 billion this year. The company grew annual earnings from $13.4 billion in 2009 to an estimated $16.5 billion this year. Wal-Mart retired roughly 15% of its shares outstanding over the time period, thereby accelerating earnings per share growth.

It is understandable why shares are falling in Thursday's trading session. Given the recent strength in the stock's share price, expectations have risen. Comparable sales growth of 1.5% fell slightly short of analysts expectations of 1.8%. Notably, Sam's Club disappointed as the division traditionally showed higher revenue and comparable sales growth.

A little disappointing was the mere 0.1% increase in traffic growth as higher gasoline prices resulted in tight discretionary spending. Investors were furthermore not delighted with a 7.6% decline in store traffic at the stores in China. Another problem is that bribery charges at Wal-Mart's Mexico unit might be more widespread than previously anticipated. The company is also opening inquiries in Brazil, China and India.

On the positive side, sales are better than expected so far in November which is a promising sign for the important holiday quarter.

Despite some small operational issues, the long term prospects remain good. The company has steadily increased revenues, earnings and dividends while steadily repurchasing its own shares. Wal-Mart is on track to earn over $20 billion in 2015, while earnings per share could come in between $6.50 and $7.00 per share.

Long term investors can pick up some shares for nice returns in the coming decade.

Source: Wal-Mart - Short-Term Weakness Gives Investors An Excellent Entry Point