Linked here is a detailed quantitative analysis of Wal-Mart Stores, Inc. (NYSE:WMT). Below are some highlights from the above linked analysis:
Company Description: Wal-Mart Stores, Inc. is the largest retailer in the world, Wal-Mart operates a chain of over 10,000 discount department stores, wholesale clubs, supermarkets and supercenters.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
WMT is trading at a premium to all four valuations above. The stock is trading at a slight discount to its calculated fair value of $77.57. WMT earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section, there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
WMT earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. WMT earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 39 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
WMT earned a Star in this section for its NPV MMA Diff. of $2,943. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as WMT has. If WMT grows its dividend at 13.5% per year, it will take 3 years to equal an MMA yielding an estimated 20-year average rate of 3.41%. WMT earned a check for the Key Metric 'Years to >MMA' since its 3 years is less than the 5 year target.
Memberships and Peers: WMT is a member of the S&P 500, a Dividend Aristocrat, a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: Costco Wholesale Corporation (COST) with a 1.1% yield, Target Corp. (TGT) with a 2.7% yield and PriceSmart Inc. (PSMT) with a 0.6% yield.
Conclusion: WMT earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks WMT as a 5-Star Very Strong stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $143.64 before WMT's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 39 years of consecutive dividend increases. At that price, the stock would yield 1.3%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 7.5%. This dividend growth rate is significantly lower than the 13.5% used in this analysis, thus providing a significant margin of safety. WMT has a risk rating of 1.00 which classifies it as a Low risk stock.
After wandering through the wilderness, WMT has returned to its everyday-low-price strategy roots. In addition to major price cuts, the company is focusing new capital on higher-return domestic small stores with less expansion at lower-return international stores.
WMT enjoys dominant positions in most markets where it competes. The weak economic environment favors the company with price-conscious consumers looking for bargains when shopping for staples and basic discretionary items. The company's unmatched scale leads to favorable terms on everything from the products it sells to store leases and distribution agreements.
Going forward, WMT will face fierce competition from Costco, Amazon, dollar stores and other such retailers. These competitors operate with lower fixed assets and target lower profit margins. With its share price increase, the stock is now trading near my fair value price of $77.57.
Late 2012 and earlier this year, I trimmed my position in WMT when it was yielding below 2.5% and there were better alternatives available. Most of those alternatives have dried up and WMT is now hovering around my 2.5% minimum yield. I will likely begin adding to my position as its price and yield allows.
Full Disclosure: At the time of this writing, I was long in WMT (1.1% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
