Not far ago there was an information that Warren Buffett sold his stake in Wal-Mart. On Tuesday company presented very good results from Q4. Was Warren Buffett right with his selling decision?

Well, it’s too short period of time to say that. Also I do not know the average selling price of Berkshire. What I know and can do is to look on financial statement and present my own opinion about WMT.

Let’s start with some comment from CEO:

So, in summary,

  • We have a clear strategy we’re executing against.
  • We’re uniquely positioned to deliver value unlike any other retailer through both physical and digital assets.
  • We have momentum across the business which positions us well for the new fiscal year.
  • And while we must do more, we believe we’re on the right track as we work to be the most trusted retailer for our customers, provide ongoing opportunity for our associates and deliver results for our shareholders.

Well, retail market is changing and it is no doubt that e-commerce is growing. WMT is seeing that and they are heavily investing. That’s good, especially if we consider purchasing power of WMT.

Company expects results to be flat in the next fiscal year (FY18 EPS: $4.20 to $4.40). Surely, we all love growth, but flat year in case of heavy investments and transforming traditional business is not a bad news.

Coming to numbers:

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I especially love two numbers in WMT. Free cash flow of $21b, which is around 9.5% of current market cap and return to shareholders of $14.5b, which is a 6.5% return to shareholders. As a stable long term investment it is definitely a decent result for me.

The hype is that e-commerce is growing and brick and mortar shops are dying. Well, what I see in Walmart U.S. is comp sales increasing!!

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Similar case is in Sam’s Club

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And in Walmart International when looking constant currency.

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OK, currency changed in fact and I prefer looking at operating income without adjustment for currency, but when analyzing traffic I need to look on constant currency basis, as for locals currency changes doesn’t matter.

Looking at valuation:

EV/EBITDA = 8

P/E = 16.5

Dividend yield = 2.8% (up to $2.04 from $2.00, so small growth), but I expect buyback to be continued.

 

Summing up, I am not Warren Buffett (and I do not want to be, I prefer to be young), but I think that situation in WMT is developing right. Company has a strong moat, which is a scale of operations. Valuations on the market are high, I prefer defensive names. For now I will keep my position, though my take profit level of $80 is unchanged.

 

Disclosure: WMT – long