Wal-Mart Earnings Preview: Fairly-Valued, Stable, Consistent Earnings Grower

| About: Wal-Mart Stores, (WMT)

Wal-Mart (NYSE:WMT), the juggernaut retail king of all things "every-day-low price", reports its fiscal q1 '13 earnings before the bell on Thursday, May 16th.

Analyst consensus is looking for $1.15 in earnings per share (EPS) on $116.4 billion in revenues, for expected year-over-year growth of 5.5% and 3%, respectively.

I wish I could write something incredibly insightful and penetrating about the retail giant that would have readers grabbing their keyboards and punching in the ticker for a transaction this coming week, but the truth is that WMT is a steady, consistent earnings grower that rarely disappoints and rarely deviates from an incredibly-powerful business model driven by the simple notion of "everyday low price" (EDLP).

The mega-cap retailer stock traded above its January, 2000, $70.25 all-time high in July 2012, and hasn't given back much despite worries about Mexican bribery scandals, the social security tax increase, slow tax refunds and a few other worries.

One aspect that has helped the stock in the last 18 months is an improvement in US (Wal-Mart US) comps, which hit a peak in the April 2012 quarter at 2.6% but continue to remain in the 1% - 2% range since then. Current fiscal 2014 and fiscal 2015 EPS estimates of $5.34 and $5.88 leaves WMT trading at 15(x) and 13(x) those estimates, with y/y growth expected at 6% and 10%, respectively.

The two most compelling valuation metrics for WMT are the "price-to-sales" ratio of 0.50(x) since WMT's market-cap of $258 billion is just half the $475 billion in annual sales WMT currently generates. (Most retailers are thought to be fairly-valued at 1(x) price-to-sales.) The other compelling metric is WMT's 9(x) cash-flow valuation, which is a lot cheaper than a lot of other consumer staples names.

WMT announced they would be opening fewer US stores in fiscal 2014, which will likely improve free-cash-flow, most of which is going to the dividend and share repurchase programs.

Two other items to note from last quarter: the Jeffries retail analyst noted in his February, '13 report that WMT quantified their internet investment for the first time ever at $0.09 per share. Walmart.com is not to be trivialized. They are the closest thing to a competitor to Amazon (NASDAQ:AMZN), with a 30 year head start. Another little tidbit taken from the 4th quarter, '13 (Jan '13 end) was that WMT's apparel comp for Q4 was the first positive apparel comp in 7 years for the retail giant.

Our internal model puts an intrinsic value on WMT of $76 per share, while Morningstar puts a fair value on the stock of $72. Basically, WMT is pretty fairly valued here, and we'd buy more on a pullback to the low $70s. Could WMT run to $100? Yes, I think it could, but EPS and revenue growth would need to accelerate from their respective high-single-digit and mid-double-digit ranges, possibly from lower gas prices, or faster job growth.

I've always felt that WMT was the best run company in America today. With $475 billion in annual sales, it is one of the best real-time, on-the run economic indicators in the market today. With job growth improving, stable oil and gas prices, better housing prices and improved consumer balance sheets, don't sell this juggernaut short. Long time head-winds like housing, gasoline, disposable incomes and national incomes are slowly becoming tailwinds.

Good US comps or lower gas prices would be a big positive for the stock. We'd buy a re-test of the low $70s on any pullback.

Disclosure: I am long WMT, AMZN. 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.

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Tagged: , Discount, Variety Stores, , Earnings
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