Wal-Mart: Another 20%-40% Upside in Store

| About: Walmart Inc. (WMT)
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Our value investing methodology has shown Wal-Mart (NYSE:WMT) to be a very attractive buy candidate for quite some time now. In fact, at the beginning of 2007 we were asked for our top value stock buys by Barron’s and Wal-Mart topped our list. The price has oscillated a bit since then, but we are proud to state that it is up over 20% since our Barron’s pick. Most of that price appreciation has occurred in the last 6 months, but even after the great performance of Wal-Mart stock of late we still think it represents a good value buy for the long term investor.

The retail behemoth has seen its stock rise to a 3 year high and Wal-Mart shows little sign of slowing. It has beaten analyst estimates for each of the last two quarterly results. Furthermore, Wal-Mart raised guidance for first quarter earnings from $.70- $.74 to $.74-$.76. Wal-Mart just broke the $100 billion quarterly revenue for the first time in history. The impressive retail sales growth has been amidst an economic slowdown, and that suggests that as the American economy slows it does not necessarily hurt Wal-Mart.

Wal-Mart is known to be the “low price leader” and consumers are looking for bargains now more than ever as they experience rapidly declining home values and higher unemployment factors. Wal-Mart is a one-stop shop and people will likely flock to Wal-Mart for basic needs versus the more-pricey specialty retailers. As an example, Wal-Mart sells more groceries than any other retailer. They sell things that people need, at a more affordable price, and brought to the consumer with great convenience. It is the juggernaut of retail and we see few that could challenge their dominance.

International expansion has been just as impressive, as growth in Latin America and Asia has taken off. The company expects to see continued rapid growth in the emerging markets of China, Brazil, Canada, and the United Kingdom. The company on Monday named a seasoned German retailer, Stephen Fanderl, as the new President of Wal-Mart Emerging Markets- East. Fanderl has been asked to “explore retail business opportunities in Russia and neighboring markets.” Russia could be a slight risk, but the size of that potential market makes it worth taking. At the current pace, it seems that there may be a Wal-Mart store in every corner of the world.

With all of the success that Wal-Mart is enjoying right now, it is amazing that it is still so undervalued by our methodology. We have calculated Wal-Mart’s normal range historically for price-to-cash flow as 13.02 to 17.45, and the current level is 10.81. Price-to-sales is similarly undervalued as the normal range is .643 to .86, currently .538. The value of the company is unmistakable and the macroeconomic trends seem to be aligning in Wal-Mart’s favor. Therefore, the Ockham Research rationally expected price target is between $66 and $77.

Disclosure: None