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Closing in on $500 billion (bl) in annual sales, Wal-Mart (WMT) officially ends the q2 '13 earnings season Thursday morning, August 15, when they report their fiscal Q2 financial results.

Analyst consensus is looking for $1.25 in EPS on $118.7 billion in revenue for expected year-over-year growth of 6% and 4% respectively.

In the first fiscal quarter reported in May '13, WMT disappointed, reporting 4.5% in EPS growth and 1% revenue growth. Comp's fell 1.2%, which was definitely unexpected by the analyst community.

It is thought that about 200 bp's if Q1 comp's were payroll tax hike, weather and slow-tax-refunds related.

The other weak spots in the quarter were higher-than-expected expenses associated with the Foreign Corrupt Practices Act (OTCPK:FCPA), and very poor International results. International EBIT (Earnings Before Interest and Taxes, or what normal people call operating income) was down y/y, that segments worst showing since July '09.

That being said, Q2 all-around should be a better quarter.

Closing in on $500 bl in annual sales, in a $15 trillion economy, I've always felt that WMT was the best, real-time, on the run, coincident economic indicator in the markets today. Consumption is 2/3rd's of GDP, and WMT is thought to be 10% of all retail sales, so watching the stock price can be thought of as the national mood ring of the US consumer.

Management guided to 0% - 2% US comp's, which is consistent with the comp seen starting late October, 2011.

Year-to-date, WMT's stock is up about 13% versus the SP 500's 18% - 19% as of this writing.

Here is a brief table of historical comp's for WMT:

WMT's Comp's w/out fuel
 ttl comp

WMT

comp

Sam's

comp

7/13 (est)0%-2%  
4/13-1.2%-1.4%0.2%
1/131.0%2.3%1.2%
10/121.7%1.5%2.7%
7/122.5%2.2%4.2%
4/123.0%2.6%5.3%
1/122.1%1.5%5.4%
10/111.9%1.3%5.7%
7/110.0%-0.9%5.0%
4/11-0.3%-1.1%4.2%
1/11-1.1%-1.8%2.7%
10/10-0.7%-1.3%2.4%

* Source:internal spreadsheet

The WMT division is roughly 59% - 60% of WMT's total revenues, but represents 70% - 75% of WMT's total operating profit. Management announced last year that capex would be lower for US stores, which you can see in the financial trends as WMT US revenues have fallen from the mid to high 60% of total revenues to its current 59% and continues to diminish.

Sam's is 12% of total WMT revenues and 5% to 7% of operating profit. That hasn't changed in some time.

WMT International revenues have grown from the low 20% to high 20% as a total of WMT revenues. International operating profit has been steady around 18% - 20% for some time.

Both Sam's and International have not been able to leverage revenue growth of their respective divisions, while WMT US clearly has. WMT management is one of the best in the retail game.

Valuation:

WMT at $77 per share, is trading at 15(x) the 2014 EPS estimate of $5.30 and 13(x) the 2015 EPS estimate of $5.82, for expected growth of 8% and 10% respectively.

It appears as if WMT has settled into a trading range of high single digit EPS growth and mid-single-digit revenue growth, for some time.

At 10(x) cash-flow, WMT is not as cheap as it was in early 2012 at 7(x) cash-flow.

WMT is currently distributing all their free-cash-flow to shareholders in the form of the dividend and share repurchase plan. The current share repo program is almost up, so expect a new shareholder repo program to be announced sometime in the next 2 quarters.

Morningstar puts an "intrinsic value on WMT of $74 per share, while our internal model values WMT at $81, so using average of the two, WMT is thought to be fairly valued. However, Morningstar's model has gradually increased its fair value of WMT over time, from $61 six quarters ago to the current $74 estimate.

Conclusion:

WMT has a tough calendar 2013 out of the box, given the payroll-tax hike, the slow tax refunds, the general consumer angst around the sequester, etc. not to mention the snowstorms and aberrant weather in the Northeast last fall and earlier this year.

We expect a better 2nd quarter, for the giant retailer.

As groceries now represent 50% of total revenues, that low-margin, high-volume product line fits perfectly with WMT's distribution model, with the other 50% being higher-margin, lower-volume merchandise.

WMT will continue to innovate as it works on emerging trends such as same day delivery (think of how that fits with groceries) and its under-estimated e-commerce website, Walmart.com.

WMT is a core holding within client accounts and will remain so as the retailer executes on margins and inventory, and merchandising prowess.

WMT broke out to an all-time high in July - August, 2012, well before the SP 500 did in the Spring, 2013, and while WMT has lagged of late, we expect it to break out above its $79.96 all-time high this year. Gasoline has been stable and housing and consumption will improve with job growth and US consumer balance sheets.

Source: Wal-Mart Earnings Preview: Still A Leadership Stock, U.S. Comps Are Key