Essay About Company Valuation And Wal-Mart

Frittelle Di Mele
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Company valuation: There are broadly two important issues being reflected in the companys
valuation, including soft domestic comp store sales and capital allocation to international growth.
While we expect the company to have a longer term view than most investors on international
growth, we believe the shares can still work if comp store sales turn positive this year in the
domestic operations
SG&A: Wal-Mart has managed through a challenging situation with improvements in SG&A as
labor productivity improves and profit margins and returns remain remarkably consistent.
Inventory: Consolidated inventory was up 11.0%. The increase was driven in part by some catchup
after aggressively managing inventories down the last couple of years, and in part by planned
increases in action alley and an expanded assortment through the store.
Investment Summary
We are issuing a Buy rating and $61/share price target on Wal-Marts shares following the companys 4Q11
earnings release.
Soft Sales Overall
There is still more work to do across general merchandise categories with a lot of heavy lifting in Q2, but
management believes it can have the rest of the store appropriately merchandised by the start of the back to
school season. While large scale changes that Wal-Mart is implementing may be challenging, we are still in
but Labour Productivity to Continue to Improve
Labor productivity is improving in areas like the backroom and we suspect we could see a broader rollout of
EPC (currently just in jeans) in the not-too-distant future, which could have a substantial impact on labor
productivity and potentially allow the company to redirect labor hours to customer service. In the near term,
it sounds like the company should be able to continue leveraging at low levels of comp store sales (possibly
even at negative comps as we have seen recently). Management is cutting back on capex.
Business Description
Wal-Mart is the worlds largest retailer with revenues for the fiscal year ended January 31, 2010 of $405
billion.