Most retailers are hard-pressed to beat Wal-Mart Stores (NYSE:WMT) rock bottom prices, so even through the recession and gradual recovery the company has maintained its crown as the largest public corporation by sales.
Now that the company has just released its first-quarter earnings, let’s visit WalMart and see if its strategy of offering “Every Day Low Prices” is still drawing in shoppers.
Company Overview
Even though it started as a mom-and-pop operation in 1962, WalMart has since grown into the largest public corporation by revenue. Although it is best known for its Walmart brand name, WalMart Stores Inc. is actually responsible for 55 brands of discount department stores across 15 countries. WalMart has the largest private workforce in the world; it employs over 2.2 million individuals across almost 9,000 locations worldwide.
Earnings Buzz
Thanks to continued strength in its overseas operations in the first quarter, WalMart posted top- and bottom-line growth that topped consensus estimates. Compared with Q1 2011, profit climbed 10% to $3.74 billion, or $1.09 per share. Analysts forecast earnings of $1.04 per share, so WalMart posted a 5% earnings surprise.
Over the same period, sales rose 9% to $113.02 billion; this topped the $110.43 billion consensus sales estimate by 2%. Management is also bullish about the company’s second-quarter prospects.: The company is headed towards earnings in the range of $1.13 to $1.18 per share; this is in line with the $1.16 per share consensus estimate.
Industry Breakdown
Of the 19 companies in the Discount Variety Stores industry, WalMart is the largest in terms of market cap. The company also stands out in terms of its 2.7% dividend yield, which is third in the industry, as well as both its Price/Earnings to Growth Ratio and its return on equity, which are the fifth highest in the industry. In terms of sales and earnings growth, WalMart falls in the middle of the pack, and the company’s long-term growth rate is only 14th.
WalMart’s main competitors are Costco (NASDAQ:COST) and Target (NYSE:TGT). Of these three companies, WalMart has the second-highest sales growth, the second-highest gross margin and the second-highest operating margin.
Current Ratings
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. This time last year, WMT was a C-rated hold. Since then, the stock has improved slightly due to a moderate increase in buying pressure.
However, on the fundamentals side, there is still a lot of room for improvement. Currently, WalMart can’t pull off anything higher than a C-rating with the exception of its A-rated return on equity. Six of WalMart’s fundamental metrics receive a C-rating, including sales growth and earnings growth, and WalMart even gets a D in terms of its track record of beating analyst earnings estimates. WMT receives a B for its Quantitative Grade and a C for its Fundamental Grade.
Bottom Line: Right now, the only thing keeping this stock at a B-rated buy is its buying pressure. If WMT sustains a dip in buying pressure after this earnings announcement, it could very well send this stock down into hold territory. For those of you who hold shares of WMT, I recommend that you run this stock through Portfolio Grader regularly to detect any changes in buying pressure.
Recommendation: Cautious Buy
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