This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Have Weak Sales Hurt Wal-Mart's Value?

NEW YORK ( TheStreet) -- On April 2, when we last discussed retail giant Wal-Mart (WMT - Get Report), I made a case for why I thought the stock was undervalued despite the stock (at the time) posting 12% gains.

In that article, while comparing the relative performances of rivals Costco (COST) and Target (TGT), I said:

"For now, from an investment perspective, the stock is still trading at an attractive valuation. When compared to Costco and Target, which are both trading at higher P/E ratios, a case can be made that Wal-Mart is undervalued by at least 10%. With continued operational improvements and a recovering economy, patient investors should expect shares to approach the lower $80s by the second half of the year."

Since that article, the stock has gained as much as 6% when factoring the 52-week high of $79.96 reached on May 15. While I'm not ready to change direction on my bullish sentiment, I was nonetheless disappointed by Wal-Mart's weak first-quarter sales, which prompted shares to fall by as much as 3%.

Consolidated revenue was just 1% higher year over year to $113.4 billion. The company was slightly affected by currency exchange rate, which otherwise would have boosted revenue closer to 2%. It's still not a huge number, but given the massive global reach of this company revenue results needs to be kept in perspective. Besides, once you've reached the maturity level of Wal-Mart, it's the bottom line that carries the stock.

Nevertheless, despite decent growth (relative to expectations), theretail giant saw weak sales in its U.S. stores, with no growth. For that matter, the company's dominant Sam's Club, which rivals large discount outlets like Costco, posted an anemic year-over-year growth of half of 1% (when excluding fuel). However, the weakness in U.S. was partially offset by better results abroad.


International operations posted 2.9% revenue growth, which nearly doubled in constant currency. "Comps," which is another way to say "same-store sales" -- the metric that tracks revenue results of stores that have been opened at least one year, declined in the U.S. by 1.4%. Here again, this could be a macro issue and not necessarily reflective of poor performance by management. Bears might disagree.

However, I'm willing to excuse Wal-Mart here because even strong brands like McDonald's (MCD) posted a 1% decline in U.S. comps. I don't think anyone is ready to say that McDonald's long-term outlook is on the decline. Even with Wal-Mart's 2% decline in store traffic, the company still reported diluted earnings per share of $1.14, up close to 5% year over year.

What this means is that management is doing a great job navigating this rough patch - helped (in part) by an aggressive cost control, which helped stabilize operating margin, while yielding a 1% improvement in operating income.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
WMT $74.73 0.00%
AAPL $130.54 0.00%
FB $80.29 0.00%
GOOG $533.99 0.00%
TSLA $249.45 0.00%

Markets

DOW 18,040.37 +29.69 0.16%
S&P 500 2,111.73 +4.34 0.21%
NASDAQ 5,082.9290 +12.9030 0.25%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs