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Weekly Stock Analysis

Updated: Feb 1, 2021



Company: Walmart Inc

Ticker: WMT Previous Close: $143.84 (1/27) Industry: Retail


Short-term: Hold

Middle-term: Buy

Long-term: Buy



ANALYSIS:


Economic Moat


Free Cashflow

Walmart Inc (WMT):


Free Cashflow: $23,623,000,000

Revenue (= Sales): $542,026,000,000


Free Cashflow / Revenue (>5%) = 4.36%➤ On the surface this percentage appears to be a bit low, but upon thorough analysis, it must be understood as being relative to the industry standard. From this perspective, considering the Retail and Discount Store industry that Walmart is in along with their “low cost” strategy, these factors naturally result in lower margins. Realistically speaking this margin is actually quite good.


Net Margins (> 15%)

Walmart Inc (WMT):


Net Income (Consolidated) : $17,895,000,000

Revenue : $542,026,000,000

Net Margin = Net Income/Revenue = 3.30% ➤ This is another percentage that appears to be quite low; however, this is again a result of the industry that Walmart is in coupled with their efficient, low-cost strategy. Compared to the overall industry, this percentage is actually above average.


ROE (> 15%)

Walmart Inc (WMT):


Return on Equity (ROE)= Net Income/Shareholder's Equity

ROE = 22.90% ➤This is a very good percentage despite having lower margins.


ROA (> 6%)

Walmart Inc (WMT):

Return on Assets (ROA)= Net Income / Assets

ROA = 6.62% ➤ This is also a good percentage, comparable to Walmart’s ROE.


Economic Moat Conclusion


Walmart Inc (WMT): All in all, Walmart has low free cashflows relative to its revenue but it is still these free cashflows that are very robust in comparison to industry competitors. Walmart also has low net margins due to their low-cost strategy; yet, they are still above average for the overall industry. Additionally, Walmart has a good ROA and ROE. From these factors and the fact that Walmart has such a strong presence in their industry, in the United States, and internationally I can conclude that they indeed have an economic moat.


Valuation

Walmart Inc:

In calculating the current valuation of Walmart Inc, we will use their current free cashflow of $23,623,000,000. In the past, their cashflow was always positive but there has been a downward trend in recent years. Based on the more recent figures, I’m assuming an average yearly growth of 7% in the first ten years. Because of their economic moat, very strong position in their market as previously mentioned, and Walmart’s performance throughout prior economic recessions I calculated a discount rate of 7%. Taking each of these variables into account and engaging in further analysis, I have come to a fair value per share price of $257.41.


Current Price: $143.84

Estimated Fair Value Price: $257.41

➤43.15% Margin of Safety. This percentage is certainly more than enough for a recession-proof company like Walmart. Having taken all aspects into consideration, Walmart seems to be sitting at a good value or can even be seen as being slightly undervalued at the current time.


20 Point Analysis


1. CEO

Walmart Inc: The current chief executive, Doug McMillon, has worked for Walmart for nearly 30 years. In fact, practically his entire professional career consists of having worked for Walmart as he started his journey working for the firm as a summer associate. The capacity and extent to which McMillon has worked for Walmart are indicative of him being highly familiar with the company, that he is capable of making the right decisions when necessary, and that he is extremely loyal to the brand and continued success of the company.


2. Is the company innovative?

Walmart Inc: They invest large portions of revenue into incremental innovation with the intent of enhancing customer satisfaction. Incremental innovation, as is used in this context, refers to an innovation that occurs in smaller, incremental steps that are less disruptive for organizational proceedings instead of occurring all at once. Walmart is also investing large sums into new technology such as developing apps and autonomous grocery delivery.


3. Can the company grow?

Walmart Inc: Objectively speaking, Walmart is already one of the largest companies in the world. Even though this is the case, due to their progressive investments they have consistently been reinforcing their position in the industry while also expanding into new industries. They are expected to grow well into the future but not at very high rates and this is ok considering the company is not a growth stock but more of a stable, long-term, recession-proof stock.


4.