Wal-Mart Keeps Rolling

Aug.19.12 | About: Wal-Mart Stores, (WMT)

Retail goliath Wal-Mart (NYSE:WMT) posted decent results for its second quarter Thursday morning. Revenue increased 4.5% year-over-year to $113.5 billion, which was just a touch shy of expectations. Earnings grew 8.3% to $1.18 per share, which was at the top end of the firm's guidance range and also a tad higher than the Street predicted. The firm boosted its full-year guidance range to $4.82-$4.93 from $4.72-$4.92. Our fair value estimate for Wal-mart is $69 per share, which is based on our rigorous discounted-cash flow methodology.

U.S. same-store sales grew 2.2% for the second quarter, which is pretty good, in our view. Although Target's (NYSE:TGT) comparable sales growth was slightly stronger, Wal-Mart is in a league of its own in terms of revenue. Ex-fuel, Sam's Club same-store sales grew a steady 4.2%. We're encouraged that Wal-Mart's main driver of growth came from traffic increases because we think it means customers are returning to Wal-Mart after recently opting for the Dollar Trees (NASDAQ:DLTR) and Dollar Generals (NYSE:DG) of the world.

After stumbling a bit in 2010, the company returned to its value position. Management noted that "paycheck cycles" (aka employment) remains challenged, but we do not think current economic conditions warrant much panic for the retailer. In fact, the company remains committed to opening small urban storefronts as another, albeit smaller, growth driver. The firm will open 95-100 new stores in the third quarter, including small store and super center formats.

Wal-Mart International posted strong results, with revenue growing 6.4% (7.4% currency neutral) to $32 billion. Walmex, now famous for its bribery scandal, reported 10.5% sales growth during the period. Additionally, the company is embarking on its largest Canadian expansion to-date, much like competitor Target. As we've seen out of several companies, Wal-Mart has decided to moderate its growth trajectory in China. Though we're not entirely sure if this is indicative of slowing macroeconomic growth in the country, we do think it illustrates how many retailers have aggressively entered China, only to later realize their plans were't that great.

It's hard not to like Wal-Mart after it has generated over $6 billion in cash flow year-to-date. Management reported strong growth in almost every way imaginable, and the bribery scandal that stole headlines has fallen to the wayside. Even though shares pulled back modestly later, we think the firm is fairly valued. Shares score a 6 on our Buying Index stock-selection methodology, so we do not think the company is particularly attractive at this juncture.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.