Author Topic: Walmart  (Read 9432 times)

swf83

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Walmart
« on: September 25, 2009, 09:30:50 AM »
I am looking for some thoughts on Walmart as it is getting beat up a bit today. My view is that no matter how good or bad the economy is, Walmart will do very well because it sells what people need at the best price. Yield should double every 4-5 years, $16. billion buyback in place, huge cash flows, large moat.

Any thoughts?


swf83

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Re: Walmart
« Reply #1 on: September 25, 2009, 07:29:56 PM »
No one has any thoughts on Walmart?

StubbleJumper

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Re: Walmart
« Reply #2 on: September 26, 2009, 05:21:34 AM »
I'm not surprised that WMT is not getting much air time.  It's selling slightly north of 14X earnings.  While that's relatively cheap for WalMart, it doesn't mean it's cheap-cheap. 

The big question about WMT revolves around future growth.  At a certain point, it can no longer rack up 10% annual sales increases.....so what should we expect going forward?  Perhaps 2% annual SSS growth to reflect inflation, plus maybe another 4% annual sales increase to reflect an increasing store count?  I really don't know.

Anyway, in 2006 or 2007, a company like WalMart would have been very attractive at 14X or 15X earnings and the prospect for steady 6% growth.   However, most of us have had a spectacular opportunity to deploy capital into much better vehicles over the past year due to the wonderfully volatile markets of last winter.  We are spoiled from having had so many no-brainer opportunities that WMT simply looks mediocre in comparison.

SJ

swf83

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Re: Walmart
« Reply #3 on: September 26, 2009, 06:06:44 AM »
Thanks for your reply.

In your response you mentioned the most compelling reason to buy Walmart right now without even realizing it:

"However, most of us have had a spectacular opportunity to deploy capital into much better vehicles over the past year due to the wonderfully volatile markets of last winter.  We are spoiled from having had so many no-brainer opportunities that WMT simply looks mediocre in comparison."

Most successful fund managers will tell you (through reading their commentaries) that you buy best of breed/quality stocks when there is no interest in the stock (when no one is talking about the stock). That is exactly why I am going to start buying Walmart this week and hold it for a very long time. The lowest price target on the street, I believe, is $50/share, and the stock is already trading under that threshold.

So much to like in my opinion.

ERICOPOLY

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Re: Walmart
« Reply #4 on: September 26, 2009, 07:33:25 AM »
The P/E is higher than PG or JNJ.  Why?

Uccmal

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Re: Walmart
« Reply #5 on: September 26, 2009, 07:59:36 AM »
I am trying to think how WMT will grow any faster than the GDP of the US going forward.

Expansion into other countries has been met with extensive competition, and effectively stalled.  e.g. Sam's Club, after a huge foray into Canada has withdrawn, completely, by the looks of it. 

Growth to this point has been driven by:
1) First mover advantage exploiting the cheap Asian labour force.  This allowed them to have the Lowest Price is the Law. 
2) Rapid expansion -  and expansion into non-US markets.
3) Inability of competition to keep up on the logistics front.
4) Demand for ever more stuff.

I would suggest that:
1) This advantage is gone now.  Labour is getting more expensive, internal markets in these countries are growing, taking away Walmarts price advantage and margins. 

2) Expansion into markets outside the US is very limited now.  In every country they go into, the competition is entrenched making it harder to get the cheap growth they are accustomed to.

3) Homegrown competition has learned logistics.  Also the logistics machine was partly based on their ability to move into new markets rapidly and have very quick deployment of stores and goods.  This strategy has reached its limit in nearly ever new market available.  There is no advantage of putting the huge logisitics machine in place in a market where Sam's club and the grocery expansion have failied.  If fact, it becomes a disadvantage on the cost front.

4) I think that consumers are exhausted.  I also thinking a prolonged recession pushes people to buy better quality because it lasts longer.  Walmart is not reknowned in this department.  Now, on this I may be underestimating the conditioning of the American public.

Other:
When your business relies on the less well off in society to maintain its moat it had better be a real good moat.  Macdonalds and Coke have such a moat.  I see people going to Mcd for the experience or drinking a Coke for the experience.  I am having a hard time conceiving why Walmart would have a moat at all as a brand.  It's moat rests in having the lowest price which is no longer its advantage.

I would suggest that buying stock in Walmart is dead money at best. 

At worst it could experience actual drops in earnings and PE compression which could completely crush the stock.  The potential for a 70-80% inflation adjusted loss is very great with this company. 

GARP tending toward value

nodnub

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Re: Walmart
« Reply #6 on: September 26, 2009, 09:21:05 AM »
Expansion into other countries has been met with extensive competition, and effectively stalled.  e.g. Sam's Club, after a huge foray into Canada has withdrawn, completely, by the looks of it. 

Sam's Club is a small piece of the puzzle in Canada and was only in Southern Ontario.  They are building new WM supercenters in other parts of Canada.

Wal-Mart Canada to close Sam's Club stores
Last Updated: Friday, February 27, 2009 | 7:13 AM ET
Wal-Mart Canada will close its Sam's Club stores in southern Ontario next month, affecting 1,200 jobs. The company, which employs 80,000 people across the country, says it plans to focus business operations on its supercentre outlets and discount stores as people become more price conscious in the worsening economy. Sam's Club is a members-only, warehouse-style format, similar to Costco. It's been in operation in Canada for five years.


Quote
4) I think that consumers are exhausted.  I also thinking a prolonged recession pushes people to buy better quality because it lasts longer.  Walmart is not reknowned in this department. Now, on this I may be underestimating the conditioning of the American public.

I am not a cheerleader for Walmart but I have been in a new Supercenter recently. Just about anything that you actually need to buy is a dollar or two cheaper than anywhere else in town. I'm not talking about cheap knock-offs, I'm not talking about the brands I have been used to buying for 20 years here. Oskar brand brooms, altantic bee mops, other household needs like batteries, smoke detectors, socks/underwear, toilet paper, automotive fluids. They are pretty cost competitive on a majority of the products I have seen in there. and the customers seem to know it... the stores here are packed.  However, I can't speak for other areas.

cheers,
nodnub

benhacker

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Re: Walmart
« Reply #7 on: September 26, 2009, 09:34:45 AM »
i think WMT and COST are fantastic inevitable businesses.  I'd love to own both if the price was right.  I'm still trying to figure out what 'right price' really is, but I'm interested in both at today's prices.

I think WMT is one of the most misunderstood businesses out there personally.

Ben
Ben Hacker
Beaverton, Oregon - USA

Uccmal

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Re: Walmart
« Reply #8 on: September 26, 2009, 10:16:44 AM »
I agree.  The stores are packed now... so where is your growth going to come from?

At some point there is a growth limit and I think that limit is close.  There is no significant downside baked into the stock price to reflect that.

Peter Lynch probably describes it further better than I can in "One up...".  Todays fast grower becomes tomorrows slow growing stalwart.  WMT is well past the fast grower stage now. 

If the share price moves nowhere for 10 years that is a loss of 30-40% plus opportunity cost.  If it was 70% cheaper I think it would be good value.  I would like to see them feed some of that cash out to shareholders as well.  For a cash machine it sure is a stingy dividend. 

If it only goes to 75 you break even in 10 years.

 
GARP tending toward value

txlaw

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Re: Walmart
« Reply #9 on: September 26, 2009, 11:28:01 AM »
Last time I looked at Walmart, I determined that it was trading at a valuation that was fair but not cheap.  Walmart is a great business, and I'd rather own Walmart for the long run than many other available investments, but it's not trading at enough of a discount for me at this time given the other potential investments available.

As people have pointed out, Walmart has pretty much saturated the U.S. market with its retail operations.  So the question is whether they can successfully expand abroad, either through wholly-owned direct ventures, joint ventures, or equity investments in retailers that WMT can help optimize.

Walmart is expanding abroad in the BRIC countries, but it's unclear what type of profits they will make from this expansion.  Just recently I heard about Walmart having opened up a store in Amritsar, which is in the state of Punjab (in India).  However, according to an article I read about the Walmart operation in Amritsar, the store is a wholesale rather than retail operation.  It's all about logistics and supplier networks, not the brand.  And they will have quite a bit of competition from the likes of Tesco, Carrefour, and homegrown companies, who were much faster at moving in India than Walmart.  Margins will be razor thin, and if they cannot expand and gain meaningful market share, earnings from India may not be meaningful in terms of increasing intrinsic value.

Basically, if you want to figure out what WMTs growth will be going forward from their retail business, you need to do some serious due diligence into how much success they are having with their big box format abroad and whether they've partnered with the appropriate people (via joint ventures and equity investments).  Success is by no means guaranteed.  Theyve actually had to pull back from some countries after failing.

Note, however, that Walmart may have the opportunity to expand into other lines of business in the U.S. such as health care and finance.  Walmart pushing down the costs of consumer credit transactions would be amazing -- hopefully, the government lets them get into this business.  So that's a potential upside that no one has talked about.

You may want to consider other specialty retailers that are trying to expand abroad such as HD or LOW.  I haven't looked at these guys, but they may do better abroad because of their more differentiated operations.