Thursday, June 19, 2014

Walmart Stores Inc. – a Fluctuating Performance

Wal-Mart Stores Inc., more famous as just Wal-Mart is a company that operates in the retail industry, with various formats for its endeavors across the globe. In the US it dominates the market with almost 90%, offering a very large variety of outlets – discount stores, supercenters, neighbor markets and other smaller location buildings. On the international scale the company has strongest reach in Canada, Brazil, Costa Rica, Salvador, Honduras, China, Argentina, Mexico, Japan and the UK. The main corporate governance is in Bentonville, Arkansas and the company is estimated to employ around 2.2 million people in 2013.

The revenues for Wal-Mart in the fiscal year that ended in January, 2013 are reported to be $469 162 million, which is a 5% increase in comparison to 2012. The operating profit was $27 801 million, which is a relatively similar increase of 4.7% from 2012. Net profits accounted for nearly $17 000 million in 2013, which on the other hand is an 8.3% since 2012. As you can see smart cost-cutting and reallocations in operations and taxes have saved a lot of resources for the company, which has a lot of influence in the US, where it makes more than half of all its revenue.

The Image of the US giant is somewhat controversial. One the one hand it is an absolute market leader with almost unprecedented scale and very wide retail variety in products. Its economies of scale allow the company to offer the lowest costs, which also earns it constant market growth. This increasing influence has given the company a wide international reach, which gives the stores a huge advantage in local areas with neighborhood markets becoming uncompetitive. On the other hand it has a bad reputation with labor relationships and violation of corruption laws, which has brought a lot of bad press and fluctuating stock performance. However, the sheer scale of the company has ensured its leading position on the US market, especially with the influence it has on major suppliers.

Currently Wal-Mart stock is trading for $77 per share. 52 weeks ago it was around $76 and in the period it fluctuated a lot, with the lowest price being $71.81 in October, 2013 and the highest $81 in December. Such variance is typical for the retail sector, as most of the earnings come during holiday periods. However, this degree of uncertainty is high even for this industry and investors’ opinions are controversial.

12-month forecasts for WMT stocks have an average target of $81 for the next periods, with the highest estimate being $90 and the lowest $66. The average estimate is a 2.44% increase in comparison to the current price. As it can be seen expectations are that the performance of the US retailer will stabilizer over the next year, yet it isn’t enough to boost confidence. With only 2.44% in potential earnings and such high degrees of variance, the gains are just not worth the risk. Polled investment analysts recommend for existing shareholders to hold their stock, as chances are that it will score at least minor increases over the next quarters, yet potential investors should wait for the quarter starting after three months, which is historically the most profitable for the sector. This expectations by itself creates a self-fulfilling trend, since everyone is set to buy in this period and the demand surges the price. The only events that can change this expectation are either bad press releases or sudden improvements in international operations, opening new markets for the mature company.

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