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Friday August 27, 2010
Wal-Mart (WMT): An 'essential investment'
by Stephen Leeb, editor The Complete Investor  Growth Portfolio member and the largest retailer in the world Wal-Mart (WMT) just reported its second-quarter results. Earnings per share were up 9 percent – and, more important, the company increased its EPS guidance for the full year; the company is now expecting to make from $3.95 to $4.05, exceeds its earlier forecast of $4 profit for the year. With the economy remaining weak, we view its sales growth as disappointing, although Wal-Mart continued to excel in leveraging expenses. 
As a result, operating income increased at a 4.4 percent rate over the like last year period, a better rate than sales. Wal-Mart customers continued to spend cautiously, and, as was commented on the company’s conference call, “the paycheck cycle remains pronounced. Government assistance continues to increase as a form of payment, particularly in regions with higher unemployment and credit now only represents about 15 percent of our tender.” The soft U.S. economy was reflected in Wal-Mart’s flat U.S. sales. Same-store sales and same-store traffic declined—although they did show improvement by the end of the quarter. The weakness of the U.S. market was partially offset by strong trends in Wal-Mart International. Internationally, net sales increased by 11 percent and operating income grew faster than sales, reflecting growing margins. Wal-Mart’s balance sheet remains strong, with its debt to total capitalization ratio at the end of the quarter at 43.2 percent and excellent access to credit markets. This has also been the second quarter in a row that Wal-Mart has set a record for share repurchase. In the first quarter, the company repurchased $3 billion or 55.6 million shares and this quarter, it repurchased $4.1 billion or 81.3 million shares. On June 4, Wal-Mart announced a new $15 billion share repurchase authorization, which replaced its previous $15 billion plan; of that, $12.4 billion remains. We think that Wal-Mart represents an essential investment in this environment. Its 2.4 percent dividend, supported by its free cash flow generating ability, makes it an appealing investment for income-conscious investors as well. Learn more about this financial newsletter at Stephen Leeb's The Complete Investor. |
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