Wal-Mart presented a very good set of results (again). Well it was a definitely a right decision to buy WMT as business momentum has changed from negative to positive. What’s happened in Q2?

Well, graphics below presents a key financial metrics:

image001

As we can see revenues were up by 0.5% – it is a very good result having in mind strong competitors, especially Amazon. Also operating margin is up, which brings financial results very strong.

E-commerce is developing very good – Globally, on a constant currency basis, e-commerce sales and GMV increased 11.8% and 13.0%, respectively, representing an acceleration from the first quarter. Company announced that it is about to buy Jet.com for $3b and is cooperating with JD.com in China. In my opinion it is a good direction. Truth to tell I think that only WMT is able to face Amazon/Alibaba in e-commerce, because of its’ strong footprint in traditional retail and strong negotiating power with suppliers. I trust management that this acquisition of Jet.com, which seems to be expensive, will bring some extra synergies and will create shareholders value.

From dividend growth investor’s perspective it is important how much money is company generating. Currently market cap is around $231b. Company generated free cash flow of around $10b in IH, so around 4.3%. Assuming second quarter will be the same it gives us around 8.6% annually. Only in 2Q company returned $3.7b to shareholders, 1.6% in single quarter. In my opinion both these metrics are still on acceptable level and company is not too expensive.

Current guidance (increased):

image003

 

From valuation’s perspective:

EV/EBITDA ~ 8.4

P/E ~ 17.3

Well, maybe it is not a super occasion to buy shares now, but I see some space for further growth of multiples. Company is successful in e-commerce and although it is still not a big part of total revenues I assume that valuation should gradually increase.

 

Summing up, WMT is a high quality business with a good momentum. I see no reason to sell shares now and I am increasing my take profit level to $80.

 

Disclaimer – long WMT