Walmart Stock Price Looks Slightly Expensive

With all of the losses this week in the markets we change tack to look at a company that isn't trading near a 52-week low but closer to its 52-week high. Valuecruncher has previously completed a valuation of WalMart (WMT). With WMT trading around US$60.00 we thought it was time to update our valuation.

Valuecruncher valuation model of WMT with interactive assumptions

Valuecruncher produces a valuation of US$54.88 for WMT. This is a current valuation, not a target price. This valuation is 6.75% below the current share price of US$58.85.

Assumptions

Our assumptions are revenues of US$408.0 billion in 2008 growing to US$470.0 billion in 2010. We have used a flat EBITDA margin of 7.5% to 2010. Our terminal growth rate is 3.5%. We used a terminal capital expenditure number of US$14.5 billion. Our WACC (discount rate) is 8.0%. All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation. Our analysis incorporates the cash and debt on the $WMT balance sheet – Valuecruncher calculates a net debt number.

Our valuation is sensitive to the discount rate assumption. If we drop the discount rate to 7.5% then the valuation rises to US$62.84, 6.78% above the current share price of US$58.85.

Based on our analysis and assumptions the current share price looks slightly expensive. Play with our assumptions – what does your analysis say?

Disclosure: None

Comments

[User 275111:]

A valuation using terminal growth (3.5%) that does not even keep up with inflation when nearly all the products Wal-Mart sell move with inflation over time is a faulty valuation.

2008 Oct 06 02:15 PM

[Valuecruncher:]

Change the terminal growth number if you think it is wrong - you can do that with the model.

2008 Oct 06 06:20 PM