NEW YORK (TheStreet) -- Wal-Mart Stores (WMT) - Get Report stock is up by 1.50% to $61.66 in midday trading on Tuesday after Morningstar named the company one of its top stock picks in the consumer defensive sector.
Investors are concerned that the Bentonville, AR-based big box retailer will have to continue investing large amounts of money to generate sales growth, Morningstar said.
"We believe Wal-Mart's earnings power has been underappreciated, especially as investments moderate over the medium and long term," the firm said.
Though Amazon (AMZN) is ahead of Wal-Mart online, Wal-Mart's stores and distribution networks give it an advantage that can be applied online and in stores, Morningstar said.
"Wal-Mart is the closest to being able to compete with Amazon in the online channel," Morningstar added. "While investments in e-commerce and wages will pressure earnings over the next 12-18 months, we continue to believe that wide-moat Wal-Mart can leverage its cost advantage and a brand intangible asset to leverage modest sales growth once investments moderate."
British retailer Tesco was also named one of Morningstar's top consumer defensive sector stock picks.
Separately, recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate WAL-MART STORES INC as a Hold with a ratings score of C+. 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 4.87%.
- 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 29.51%, and it has underformed 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