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Wal-mart Stores Inc: Cash Flow Valuation Update

|Includes:Wal-Mart Stores, Inc. (WMT)

Current Price: ~ $61/share
Projected Yield: ~ 2.60%

Wal-Mart is the largest retailer in the world with more than $400 billion in annual revenue and fast approaching 10,000 stores across the globe. The company mainly operates supercenters, followed by wholesale warehouse clubs and also is testing a smaller store format for urban areas, which the company has yet to penetrate.

Estimated WACC for the firm today is 6.09% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year FCF $Millions
2003 3177
2004 5688
2005 2151
2006 3070
2007 4498
2008 5417
2009 11648
2010 14065
2011 10944
2012 10745

Average Annual Growth FCF: ~ 26%

CAGR FCF: ~ 15%
Consensus Forecast Industry 5-Year Growth: ~ 14% per year

Consensus Forecast Company 5-Year Growth: ~ 9% per year

Internal Growth Rate: ~ 6%

Sustainable Growth Rate: ~ 18%

Scenario 1

  • Start at $10745 million FCF
  • Assume a 5-year growth rate in FCF of 9% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year FCF $Millions
0 10745
1 11712
2 12766
3 13915
4 15167
5 16533
Terminal Value 295841

The firm's future cash flows, discounted at a WACC of 6.09%, give a present value for the entire firm (Debt + Equity) of $278429 million. If the firm's fair value of debt is estimated at $53043 million, then the fair value of the firm's equity could be $225386 million. $225386 million / 3430 million outstanding shares is approximately $66 per share and a 20% margin of safety is $53/share.

Scenario 2
All else being equal,

  • Assume a 5-year growth rate in FCF of 9% per year, then 1% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year FCF $Millions
0 10745
1 11712
2 12766
3 13915
4 15167
5 16533
Terminal Value 353949
  • Present Value of the entire firm (Debt + Equity): $321664 million
  • Value of Equity: $268621 million or $78/share
  • 20% margin of safety is $62/share

Sources

Morningstar.com

Yahoo! Finance

Walmartstores.com

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

Stocks: WMT