Wal-Mart (NYSE:WMT) currently boasts of a market cap over $241 billion and employee strength of more than two million and thus enjoys the status of a giant in the variety store segment. Currently it has trailing twelve-month revenue of $460.75 billion. The company has a presence in over 26 countries and operates through three business segments, the foremost being the U.S. segment, which accounts for 60% of its business. This is followed by the international segment, which accounts for about 28% of the company's business, and the Sam's club segment, which accounts for 12%.
Since it enjoys annual sales of more than $456 billion with a net income of over $16 billion, Wal-Mart's 2012's fourth quarter earnings of $1.44 per share succeeded in surpassing the previous year's mark by 7.5%. These results met the company's objective of maintaining a level of $1.42 to $1.48 per share. Its net sales, including fuel, rose by 5.8% to $122.3 billion from $115.6 billion for the same period as recently as a year ago. Thus, the company has always maintained their stance on the higher side and have managed to match the estimates of the analysts as well. This leads me to believe that the company is likely to outperform significantly in the near future without any foreseen risks.
The common stock prices of the company has also been highly stable with its beta as low as 0.4. The company has also shown a healthy EPS of $4.64 as against an industry average of $2.40. In this segment, the common-shares value of the company is one of the cheapest with its price earnings ratio as low as 15.56 as against an industry average of 24.37.
One of the nearest comparisons for this giant is the Costco (NASDAQ:COST). This company too has a fairly large volume of sales, mopping up close to $95 billion annually. It too enjoys a low beta of 0.52, which is a tad higher than that of Wal-Mart but is significantly higher in its valuations with its PE ratio as high as 26.69. The company's dividend yield is only about 1.2%, almost half of that of Wal-Mart's 2.2%. Hence, when comparing the two, I believe making an investment in Wal-Mart is a better move.
Another of its closest competitors is Target (NYSE:TGT). This company has a market cap of more than $41 billion and annual revenue of more than $71 billion. The company is also having a relatively lower P/E ratio of 14.67 as compared to both the industry average as well as Wal-Mart. It also enjoys high stability with its beta well below 1.0 and a dividend yield of 2.26%. The company's valuations are therefore extremely attractive at the current levels even when compared with the retail giant Wal-Mart. It even posted better-than-expected earnings numbers in its second quarter of 2012. But, if one has to choose between the two, Wal-Mart still retains its position as the preferred investment destination due to its size and reputation.
A few things which make me believe that Wal-Mart is a must have for all investors is its strategy of regular buybacks of shares and its increasing dividends which results in return of wealth to its shareholders. It has also consolidated its ownership in Massmart Holdings in Africa in addition to its likely foray into the BRIC countries which widens its multi-national presence. This is turn is also likely to enhance the earnings potential of the company exponentially. The company has also surpassed earnings estimates in recent quarters and the trend is likely to continue with the imminent recovery of the global economy. The first-quarter profit for 2012 witnessed an increase of 10% to $3.74 billion, or $1.09 per share from an increased sale by 8.6% to $112.3 billion.
But the company does have a dark cloud amidst these rosy pictures. A lawsuit exists for massive bribery scheme concerning Wal-Mart's expansion in Mexico. The complaint further alleges that the Directors of Wal-Mart Stores cost the shareholders millions of dollars as a result of this alleged bribery scandal. These sentiments therefore can spoil the company's prospects if the judgment goes against it. This has also led the company to reduce its Mexican operations till any clear decision pertaining to these charges emerges.
In spite of this setback, the company has announced series of sales driving measures like "Pay with Cash" for online purchases. They are thus the first major retailer to allow purchases online without any banking services, helping many who are wary of online frauds or those households that fall under the unbanked and under-banked categories. It also made a few "Forward-Looking Statements" including its entry into the billion odd consumers market of India. The company has currently entered into a joint venture with an Indian company expecting a retail business of about $140 billion, which is more than any of the other retailers in the segment. The Indian economy too is expected to be more foreign retail venture friendly in the near future, unlike the present-day scenario which is good news for Wal-Mart.
I believe a long-term investment portfolio should include Wal-Mart in order to derive maximum returns over the coming years.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.