Walmart Inc. (WMT)

Equity
US
Consumer Defensive

RISK

RETURN

Key risk factors

Negligible price volatility

Strong & resilient to price shocks

Good trading liquidity

Key return factors

Greatly overvalued vs peers

Decent dividends

Somewhat favourable analyst view

Corporate actions & dividendsDividend of USD 0.208 with an ex-date of 16 Aug 2024.

Company profileWalmart Inc. engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, and discount stores; membership-only warehouse clubs; ecommerce websites, such as walmart.com, walmart.com.mx, walmart.ca, flipkart.com, and samsclub.com; and mobile commerce applications. The company offers grocery and consumables, which includes dairy, meat, bakery, deli, produce, dry, chilled or frozen packaged foods, alcoholic and nonalcoholic beverages, floral, snack foods, candy, other grocery items, health and beauty aids, paper goods, laundry and home care, baby care, pet supplies, and other consumable items; and health and wellness products covering pharmacy, over-the-counter drugs and other medical products, and optical and hearing services. It also provides gasoline stations and tobacco; home improvement, outdoor living, gardening, furniture, apparel, jewelry, tools and power equipment, housewares, toys, seasonal items, mattresses, and tire and battery centers; and consumer electronics and accessories, software, video games, office supplies, appliances, and third-party gift cards. In addition, the company offers fuel and financial services and related products, including money orders, prepaid cards, money transfers, and check cashing and bill payment, as well as various types of installment lending. It operates approximately 10,500 stores and various e-commerce websites under 46 banners in 24 countries. The company was formerly known as Wal-Mart Stores, Inc. and changed its name to Walmart Inc. in February 2018. The company was founded in 1945 and is based in Bentonville, Arkansas.

Valuation: Greatly overvalued

Multiple

TTM

NTM

P/E

27.80

PEG

5.10

P/B

6.50

4.90

P/S

0.80

P/FCF

36.40

73.20

EV/EBITDA

14.80

18.60

From both historical and forecast perspectives, the stock is considerably overpriced compared to similar stocks. Specifically, the stock is expensive' on P/E, overvalued on EV/EBITDA, and overpriced on P/FCF.

Performance: Decent

The stock has been growing steadily in the past six months, adding 26% in total. The stock has outperformed its global peers from the same sector and industry (as shown above), surpassing them by 24ppts in total. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is 'fair'.

Analyst view: Somewhat favourable

The average target price is 59 and suggests 10% downside potential. Usually, this means a SELL recommendation among investment firms, or a recommendation to decrease one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 70.1. This translates into 7% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 52.9. This is equivalent to 19% downside potential in the worst case.

Profitability: Good

RoE

Walmart Inc. reported a return on equity (RoE) of 22.9% in the last 12 months, up from 19.3% in FY23. The market consensus projects an RoE of 8.0% in FY24, however, this time below its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 7.5% in the last 12 months, an increase from 6.3% in FY23. The market analysts predict that RoA will be 2.7% in FY24, though below its peers in this period.

RoCE

In the last 12 months, the return on capital employed (RoCE) grew to 11.9%, above the peers. The consensus estimate for FY24 for RoCE is 6.4%, however, this time below its peers.

Net margin

EBITDA margin

Historically, WMT has reported weak net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 2.9%, a growth from 2.4% in FY23. The company has reported weak EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 6.0% in the last 12 months, up from 5.5% in FY23.

RoIC / WACC = 2.6(strong value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.6 in the past several years. This ratio implies a strong shareholder value creation.

Growth: Poor

Revenue

EBITDA

EPS

Free cash flow

WMT reported revenue of USD 657 332mn in the last 12 months, up 1% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 22% from FY23 to USD 2.35. Market expects EPS to reach USD 2.34728 in FY24.Revenue has been growing very slowly over the past several years (middle negative), while EBITDA growth has been weak. This all contributed to continued EPS growth (positive-to-neutral). FCF has fallen rapidly, far faster than EBITDA. We emphasize the highly volatile dynamics of FCF. On the positive side, revenue dynamics is very stable.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been low and below its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Limited

The risk of default is minimal. We note solid return on capital, low margin volatility, strong debt servicing capacity, adequate interest coverage, and solid cash flow generation, among the positive credit factors. Among the negative credit factors and we point to slow historical revenue growth, and bleak profitability.

Volatility: Negligible

In normal market circumstances, WMT is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.

Stress-test: Negligible

In highly turbulent market conditions, WMT is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.

Selling difficulty: Low

WMT boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and is average on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.