Wal-Mart Looks Slightly Overvalued

Last week Wal-Mart (WMT) announced solid June sales numbers. WMT is trading toward the top of the stock’s 52-week range. We decided to have a look at some projected financial numbers using our online valuation tool.

WMT Valuation

Wal-Mart grew revenues from US$284.3 billion in 2005 to US$378.8 billion in 2008 – a 10% compound annual growth rate. Our assumptions of revenues for the next three years are US$405.0 billion in 2009 growing to US$465.0 billion in 2011 – a 7% compound annual growth rate. We have projected EBITDA margins to be flat at 7.5%. We have used a terminal growth rate of 3.5%. We calculated this terminal growth rate based on year three growth of 6.9% dropping to a 3% stable growth rate by year 10. We used a terminal capital expenditure number of US$14.5 billion. We have used a WACC (discount rate) of 8%.

Valuecruncher Valuation for WMT

Our analysis incorporates the cash and debt on the Wal-Mart balance sheet – Valuecruncher calculates a net debt number.

Our analysis gives a valuation of US$51.71 which is 8.0% below the current share price of US$56.29.

Based on our analysis the current valuation looks slightly overvalued. Play with our assumptions – what does your analysis say?

Disclosure: None

Comments

[jerico:]

I don't know for sure, and neither does anyone else, if any normal matrix or measurement is valid when an international company hits sales of half a trillion dollars.

Since it never happened before, the negatives and positives of that size and mass is unknown. It is almost certain that assumptions made with "normal" tools are probably wrong.

Therefore, Walmart is probably remarkably over-valued or tremedously undervalued. Hope that clears it up.

2008 Jul 15 11:59 AM

[Topcraft:]

A few years ago, the stock had a P/E of over 40 and was selling for over $60. I'm not so sure that $56 a share with a P/E of under 20 is over-valued.

2008 Jul 15 12:08 PM

[sold at $63:]

Check out the monthly Same Store Sales of Walmart during the last Recession 1991-1993. While numerous other retailers were posting flat,negative SSS, Walmart SSS were in the double digit increase, one month Walmart SSS were up 32%. Walmart SSS during this new recession are no where near the Walmart SSS of the early 1990s recession.

That is because Walmart today is not the Walmart of last century. Todays Walmart is a shell of itself from the invincible Walmart of last century.

Watch for Walmart shares to drop into the lower 30s within 2 years, if not sooner when the artifical sales spur from Government rebate checks end this week

2008 Jul 15 01:48 PM

[spirit_long71:]

WMT is a play on strong macro-economic trends. In this case- the trend is your friend! This company is best positioned among its peers to capitalize on a shift in consumer spending habits. Its performance here is dwarfed by how well its stores are doing internationally. Get your purple crayon out- draw the trendline- and ride it until the trend breaks. Its really as simple as that.

2008 Jul 22 12:20 PM