Will Wal-Mart (WMT) Stock Be Hurt by Brazil Misconduct Investigation?

Wal-Mart (WMT) is being investigated by U.S. federal prosecutors over allegations of potential foreign bribery in Brazil.
By Amanda Schiavo ,

NEW YORK (TheStreet) --Wal-Mart (WMT) - Get Report is being investigated by U.S. federal prosecutors over allegations of potential foreign bribery in Brazil, sources told the Wall Street Journal.

Investigators are looking into $500,000 in payments that they believe went to one person, hired to obtain government permits Wal-Mart was in need of in order to build two stores in the Brazilian capital of Brasília, between 2009 and 2012.

Earlier this month lawyers from the Justice Department and SEC as well as agents from the FBI traveled to Brazil in order to interview witnesses, the Journal added.

The agencies are seeking to determine if senior employees at Wal-Mart in Brazil were aware of the payments in question.

"As we've said from the beginning, we are cooperating fully with the government in this matter and can't comment further on that process," Wal-Mart told the Journal.

The investigation into Wal-Mart's Brazil practices follows an inquiry into the company's operations in Mexico, although the Journal reported last month that the Mexico investigation produced little evidence against Wal-Mart.

Shares of Wal-Mart are up by 0.20% to $60.04 in mid-morning trading on Wednesday. 

Separately, TheStreet Ratings team rates WAL-MART STORES INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

We rate WAL-MART STORES INC (WMT) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, poor profit margins and feeble growth in the company's earnings per share.

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

  • Net operating cash flow has increased to $4,903.00 million or 37.33% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 10.30%.
  • The debt-to-equity ratio is somewhat low, currently at 0.66, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.17 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • The gross profit margin for WAL-MART STORES INC is currently lower than what is desirable, coming in at 27.53%. Regardless of WMT's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, WMT's net profit margin of 2.81% compares favorably to the industry average.
  • Looking at the price performance of WMT's shares over the past 12 months, there is not much good news to report: the stock is down 28.58%, and it has underperformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • You can view the full analysis from the report here: WMT

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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