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Wal-Mart Stores, Inc. (WMT) appears set to continue its strategy of geographic diversification. The global retail leader is starting its operations in different locations. Moreover, Wal-Mart Stores, Inc. (WMT) seems to be in the most ideal position to benefit from the back-to-school sales season. Its successful strategy of everyday low prices along with efficiency in the supply chain is ideal for a seasonal quench. We have a buy rating on Wal-Mart Stores, Inc. (WMT).

Some might see our bullish stance as questionable because of some serious concerns, as the company reported negative comparable sales across the board and a $1.0 billion negative impact from fluctuations in currency exchange rates. This is shown in the following chart:

Click to enlarge images.

Source: SEC filings, Yahoo.com.

However, what makes us optimistic about Wal-Mart Stores, Inc. (WMT) is the increase in its consolidated net sales by 1.0% for the three months ended April 30, 2013, when compared to the same period the previous fiscal year. This increase can mainly be attributed to the 3.4% year-over-year growth in retail square feet, as well as $200 million in net sales from acquisitions made in fiscal 2013.

Its business in the U.S. is also not bad enough to suggest a bearish stance. Net sales for Wal-Mart Stores, Inc.'s (WMT) U.S. segment have gone up by 0.3% for the three months ended April 30, 2013 (when compared to the same period in the prior year). This increase in sales also is because of the year-over-year growth in retail square feet by 2.5% (offset somehow by a decline in same-store sales by 1.9%) . The main reason behind the drop in same-store sales is as follows:

  1. Core customers were impacted negatively by a significant reduction in tax refunds, followed by a 2% increase in payroll tax rate.
  2. Unfavorable weather conditions in several areas of the U.S. and economic inflation pulled same-store sales down.

From an operational perspective, Wal-Mart Stores, Inc. (WMT) seems better than its key competitors -- i.e., Target (TGT) and Costco (COST).

  1. Wal-Mart Stores, Inc.'s (WMT) managerial efficiency has been better than its key competitors. Its ROA of 8.73% and ROE of 23.62% is higher than the competitors' average of 7.64% and 19.4%, respectively.
  2. Similarly, the company's liquidity position is also in line with competitors.
  3. Wal-Mart Stores, Inc. (WMT) has emerged as a more profitable business (possibly because of its massive size and economics of scale) than its key competitors. Its operating margin of 5.93% and net margin of 3.63% is higher than the competitors' average of 3.13% and 5.45%, respectively. The following chart and graph clearly illustrate the company's financial performance.

Source: Globenum Analytics Cell.

Source: Y Charts.

From a relative perspective, Wal-Mart Stores, Inc. (WMT) seems quite better than its competitors. It PEG ratio of 1.57 and P/E ratio of 14x is better than the competitors' average. Based on its forward EPS of $5.82 and P/E of 14x, we set a target price of $81.48. This target is 5% higher than the current market price of the stock. Based on this price target, investors can earn a capital gain of 5% and a total gain of 7%, which is 3% higher than the competitors' average.

Source: Globenum Analytics Cell.

So, our analysis reveals that Wal-Mart Stores, Inc.'s (WMT) financial and strategic position is better than its key competitors. The company's strategic idea of diversification and its operational efficiency will pay a key role in benefiting from back-to-school sales. As mentioned above, we have a buy rating on the stock.

Source: Wal-Mart Stores, Inc. Has Some Solid Reasons For Attracting Bullish Investors