Retailers day one: Wal-Mart (WMT)

Wal-Mart (WMT)

Share price: $56.66

Shares: 3.45 billion

Market capitalization: $195.32 billion

Bonds: $57.1 billion outstanding with a good chunk coming due in 2013-2016.

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DIVIDEND RECORD – Measly dividend yield.  Spotty in 2010, but Wal-Mart appears to be a decent dividend grower.  Their dividend dates appear to move around a bit.  They aren’t equally spaced on the Google Finance dividend chart.

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Dividend: $0.37 per quarter

Dividend yield: 2.61%  ($1.48 annual DIV / $56.66 share price)

Dividend payout ratio: 37.5% ($1.48 annual DIV / $3.95 avg adj EPS) or 31.4% ($1.48 / $4.70 TTM EPS)  They should stop buying back shares and payout more of their earnings in the form of dividends.

EARNING POWER –  $3.95 per share @ 3.450 billion shares

(earnings adjusted for changes in market capitalization – Wal-Mart has been buying back shares for the past five years)

                        EPS       Net inc.             Shares               Adj EPS

1/2007              $2.71    $11,284 M         4,168 M             $3.27

1/2008              $3.13    $12,731 M         4,072 M             $3.69

1/2009              $3.39    $13,400 M         3,951 M             $3.88

1/2010              $3.70    $14,335 M         3,877 M             $4.16

1/2011              $4.47    $16,389 M         3,670 M             $4.75

Wal-Mart’s five year average adjusted earning power is $3.95 per share

Consider contrarian buying below $31.60 (8 times average adj. EPS)

Consider value buying below $47.40 (12 times average adj EPS)

Consider speculative selling above $79.00 (20 times average adj EPS)

BALANCE SHEET – Wal-Mart has a stable balance sheet.  I’d like to see them pay off debts to strengthen their balance sheet.  Share holder equity has gone nowhere in five years (inflation adjusted).  According to the BLS Inflation Calculator $61.573 B in 2007 has the same purchasing power as $67.238 B in 2011.  Wal-Mart’s share holder equity is $67.941 as of July 2011.  Its gone nowhere.

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Book value per share: $19.69  ($67.941 billion equity / 3,450 billion share)

Price to book value ratio:  2.87 (Okay, but not good)

Current ratio: 0.86 (over 2.0 is good)

Quick ratio: 0.13 (over 1.0 is good)

CONCLUSION – Wal-Mart (WMT) is still priced for investment at 14.3 times it five year average adjusted earnings.  The company pays a small dividend that they have grown despite some gaps in their dividend payment history.  Its balance sheet is stable, but not strong.  There are many other investments with higher dividend yields, better prices for more earning power, and stronger balance sheets.  You will have an opportunity to buy Wal-Mart below $47.40 as you plainly see in the chart below.  Wal-Mart dividend yield would only improve to 3.1% if the stock price dropped to $47.70.  It is a long way away from a high dividend stock.

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I will look at Target tomorrow and then Amazon.com on Wednesday.

DISCLOSURE – I don’t own Wal-Mart stock.

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Published in: on November 21, 2011 at 6:01 pm  Leave a Comment  

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