stock is sensitive to the company's capital expenditures.
Higher-than-expected capital expenditures could result in a potential downside to Wal-Mart's stock if the additional spending does not result in a growth in profits. Store expansions and renovations are significant component of capital expenditures for retailers like Wal-Mart,
We currently have a Trefis price estimate of $65 for Wal-Mart's stock, about 26% above the current market price of around $53.
Wal-Mart's capex as percent of gross profits has decreased from around 18% in 2006 to about 11% in 2009
1. This is because Wal-Mart already has massive coverage in the U.S. market, which is nearly saturated.
We expect capital expenditures as percent of gross profits to slightly increase as Wal-Mart focuses on international expansion by increasing its retail square footage. Wal-Mart's plans to add about 50 million square feet of international retail space during course of the years 2010 and 2011 represents an accelerated international growth over 2009
The average of Trefis member forecasts indicate that capital expenditures as percent of gross profits will rise from around 12% in 2010 to 13.4% in 2013, and return to 12% in 2016, compared to the baseline Trefis estimate of a decrease from 12% in 2010 to 11.4% by the end of the Trefis forecast period.
The member estimates of slightly higher capital expenditures imply a downside of 3% to the Trefis price estimate for Wal-Mart's stock.
You can drag the forecast trend-line above to express your own view, and see the sensitivity of Wal-Mart's stock to capex as percent of gross profits.
Our complete analysis for Wal-Mart's stock is
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Trefis members constitute more than tens of thousands of users of the Trefis platform, inclusive of investors, financial analysts, and business professionals who use the Trefis platform to create their own models and price estimates.
1 Calculations based on reported Wal-Mart capital expenditures and gross profits
Reuters: Walmart Updates Growth Plans
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