From last Friday to today, Wal-Mart (WMT) has lost around $8.5 billion of its value because of the possible bribery probe in Mexico. In a company like Wal-Mart, is this an opportunity for the long-term investor?
For the last 10 years, the company has been growing its profits in almost every one of them and that growth has come from both the inside and outside of the United States. In 2012, the total revenue was $446,950B being $317,981B from the United States and $128,969B Internationally.
While it's impossible to tell what the ultimate impact will be, I guess it's fair to expect that almost all of the consumers will continue to shop at Wal-Mart, including those in Mexico. For the consumer, this will probably mean nothing.
So, there is a pretty big probability that this probe will become a onetime event that will mean very little to the long-term investor, even if it represents 1% to 2% of sales, a number that according to Robert Carroll (an analyst from UBS) represents a typical settlement. (source: Bloomberg)
| 2012 | 2011 | 2010 | 2009 | 2008 | |
| Revenue (millions) | $446950 | $421849 | $408085 | $404374 | $378476 |
| Operating Income (millions) | $26558 | $25542 | $24002 | $22798 | $21952 |
| Net Income (millions) | $15699 | $16389 | $14370 | $13400 | $12731 |
| Total Equity (millions) | $75761 | $71247 | $72648 | $67476 | $66547 |
| EPS | $4.49 | $4.07 | $3.67 | $3.41 | $3.17 |
This article wasn't meant to analyze Wal-Mart's business exhaustively. Rather, just the possible material effect of the probe and if it should move investors away from the company. By checking the company numbers, if the settlement scenario proves to be the 1% to 2% of sales, or even more, the company should not have any trouble facing that outcome.
At today's market price, almost 2% of sales is already discounted so this may turn out to be a good entry point if you were already considering investing in Wal-Mart.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
