It were a difficult weeks for many retailers. After Target published weak financial results yesterday share price of Wal-Mart was struggling at around $63 and everyone was expecting today’s results to be weak (or very weak). And then financial results come with +9% reaction – finally above expectations, because as we remember in previous quarters investors were disappointed after results. So, what’s happened? Is Wal-Mart successfully competing with Amazon? What can we expect then?

Financial results for Q1 were weaker on EPS year on year (y/y), but above expectations:

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E-commerce grew by 7%, not bad, but I expect company to grow faster. There is no other way to compete with Amazon as improving own e-commerce platform.

Still currency impact is negative: “Excluding the $3.5 billion currency impact, we delivered total revenue of $119.4 billion, which is growth of $4.6 billion, or 4.0 percent, over last year. On a reported basis, total revenue increased 0.9 percent to $115.9 billion.”. I see it as an opportunity to improve in next quarters.

What is the most important in published results is guidance for Q2, which is positive with EPS expectations of around $0.95 – $1.08. In fact not weak financial results of Target caused its’ share price to fall, but weak guidance for Q2. This means that if guidance of Wal-Mart is above expectations then there must have been changes in business which attract more clients to Wal-Mart shops rather than shops of competitors – good in long term.

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During first quarter company paid dividend of $1.6b and repurchased shares for $2.7b, together $4.3b, which is above 2% return yield in quarter. Awesome.

Now let’s come to valuation.

EV/EBITDA around 7.4

P/E around 16.6

Dividend yield around 2.9%

Obviously as share price is going up then valuation is getting more demanding, but with current valuation I do not think that shares are overvalued. I think I will keep my shares, as business momentum should improve. I think that currently my take profit level is $75 and when share price goes there then I will come back and analyze again whether it is a good time to sell.

 

Disclosure WMT – long.