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Why UBS Cut Its Estimates For Wal-Mart (WMT)

NEW YORK (TheStreet) -- UBS has cut its estimates for the world's largest retailer Wal-Mart (WMT) following its recent quarter. The investment firm reiterated a "buy" but downgraded its price target to $86 from $87.

"Growing revenues is the most important objective. Success in revitalizing sales growth should unlock valuation upside. eCommerce and small formats will be the key growth drivers in the US long-term, and WMT continues to invest behind those drivers," wrote analyst Jason DeRise in the report. 

While UBS remains confident in Wal-Mart's growth trajectory, lower-than-expected guidance for fiscal 2015 caused it to cut its earnings estimates. 

For fiscal 2015, UBS downwardly revised its earnings-per-share estimate to $5.32 from $5.54, fiscal 2016 to $5.91 from $6.16, and fiscal 2017 to $6.55 from $6.74. 

Analysts surveyed by Thomson Reuters anticipate earnings of $5.37 a share in fiscal 2015 and $5.81 a share in fiscal 2016. 

Must Read: Wal-Mart Reports Q4 Results

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TheStreet Ratings team rates WAL-MART STORES INC as a Buy with a ratings score of A-. The team has this to say about their recommendation:

"We rate WAL-MART STORES INC (WMT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • WMT's revenue growth has slightly outpaced the industry average of 7.8%. Since the same quarter one year prior, revenues slightly increased by 1.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has slightly increased to $9,937.00 million or 2.61% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -10.81%.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • WAL-MART STORES INC's earnings per share declined by 19.8% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, WAL-MART STORES INC reported lower earnings of $4.86 versus $5.01 in the prior year. This year, the market expects an improvement in earnings ($5.51 versus $4.86).
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Food & Staples Retailing industry and the overall market, WAL-MART STORES INC's return on equity exceeds that of both the industry average and the S&P 500.

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