On 18th of February Wal-Mart presented results for Q4 FY16. After that share price plunged 5%, so what more should I say… ADM plunged 8% after last quarter results (link), so I see some progress in selection of companies. Anyway, coming back to WMT…

In fact results were a little bit higher than expectations, with EPS coming at $1.43. Nevertheless revenue guidance was substantially weaker. This is partially due to strong USD and lower translation of foreign profits (Walmart International). Secondly growing e-commerce is taking some clients of WMT.

Maybe I am biased, but please have a look:

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In fact Walmart International is outperforming markets in every foreign market – UK, Canada, Brazil, China and Walmex (Central America and Mexico). My interpretation – when economy/currency on these markets improves then WMT must be a winner.

Secondly cash flow.

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Current market cap is around $207b, which means that FCF yield is around 7.7% and YTD return to shareholders is 5%. I am satisfied with these numbers taking into account that we are somewhere in the bottom of business cycle for WMT.

Thirdly – there are many concerns about raising minimum wages in US and increasing cost of labor for WMT. Surely it is a risk, nevertheless I think this might be also the chance, as many low-cost workers are clients of WMT and will be able to spend more.

Fourthly, guidance for next year EPS is $4.00 – $4.30, which is about P/E16 = 15.4. Maybe it is not super cheap, but historically company was traded on higher multiples. Moreover many other companies are far more expensive. Moreover dividend was increased by (only) 2% do $2, which gives 3.1% dividend yield – rather high, above S&P500 average yield. Payout ratio is still low.

Finally I bought shares at $60 and took one dividend from that time. I have some profit, but I see no reason to sell shares now. WMT is significantly stronger than overall market year-to-date, but in fact many consumer orientated companies like KO, PG are very strong last weeks.

 

Disclosure WMT – long.