WMT Overview Company Performs Well In Fundamental Analysis - MarketGrader currently has a BUY rating on WAL- MART STORES INC (WMT), based on a final overall grade of 61.6 scored by the company's fundamental analysis. WAL-MART STORES INC scores at the 90th percentile among all 4948 U.S. listed equities currently followed by MarketGrader. Our present rating dates to June 15, 2005, when it was upgraded from a HOLD. Relative to the sub-industry, which Stock Price 08/07/2009 $49.29 Earnings Estimates Last Earnings Release 05/14/2009 Last Qtr. Actual vs. Est. $0.77 / $0.77 Next Release 08/13/2009 $0.86 Year Ending 01/31/2010 $3.56 Year Ending 01/31/2011 $3.89 is comprised of 5 companies, WAL-MART STORES INC's grade of 61.6 ranks second. The industry grade leader is PRICESMART INC (PSMT) with an overall grade of 75.7. The stock has performed poorly in the last six months in relative terms, up 2.72% compared with the sub-industry, up 19.76% and the S&P 500 Index, up 16.74%. Please go to pages two and three of this report for a complete breakdown of WMT's fundamental analysis. The picture above illustrates, in a simple way, how the MarketGrader stock rating system works. Every day the system gathers up to five years of historical financial data from each company it covers. All data compiled is from annual and quarterly company reports and it does not include any analyst estimates, price targets or any other form of forward looking information. All numbers are then broken down into four unique grading categories: Growth, Value, Profitability and Cash Flow. Each category contains six fundamental indicators, determined by the company's industry. Some of the figures used in the creation of these indicators (for example earnings from operations or cash flow), are not incorporated in the analysis as reported by the companies, but built by the MarketGrader system from its own methodology to ensure identical accounting standards across all companies. Each of the 24 fundamental indicators is individually graded based on a nine letter scale of A+ to F. The grade composition chart on the left breaks down the analysis of the company presented in this report, allowing you to see the indicators used. It provides a bird's eye view of the company's strengths and weaknesses. Pages two and three of the report explain the factors contributing to each indicator's grade. Finally, the MarketGrader system compiles all 24 fundamental indicators into an overall company grade, on a 0 to 100 scale. This final grade determines the MarketGrader Buy, Hold or Sell rating, illustrated by the traffic light on the upper right corner of every page on this report. Grade WMT 18 Month Price & Grade History Price Page 1
Fundamental Analysis Growth: Unimpressive Growth Record WAL-MART STORES INC 's strong top and bottom line growth in recent years seems to be slowing down considerably in the short term. Compared to full year results published three years before, the company's annual revenue grew 28.4% during its fiscal year ended January 31, 2009 while year to year quarterly sales decreased 0.7% in its most recently reported quarter. Its most recent full year net income of $13,254.0 million represents a 18% increase compared to the same figure three years before, while the company's quarterly net income increased 0% to $3,030.0 million in the most recently reported quarter relative to the same quarter a year ago. WMT's latest earnings release on May 14, 2009 significantly disappointed investors as reflected by a 3.8% drop in the price of the stock in the days surrounding the announcement. However, the company is averaging a 1.7% earnings surprise (difference between expected and actual earnings) over its last six reported quarterly figures, which means it's consistently managing to beat quarterly Wall Street estimates, an important driver of stock price momentum. Growth B- Market Growth LT A- Market Growth ST C Growth Potential D Rel. Price Str. B Earnings Momentum C Earnings Surprise B- Value: Deteriorating Valuation WMT trades at about 14.67 times earnings per basic share (excluding extraordinary items); this compares unfavorably to the MarketGrader-calculated optimum PE ratio of 8.8, based on a historical 1.75% EPS growth rate, suggesting the stock is overvalued. Our optimum PE Analysis assigns each stock the highest possible valuation afforded by its long term EPS growth rate; this historical growth rate measures the average year-to-year change in earnings per share for the company's last eight quarters (when available). The company's recent low revenue and earnings per share growth suggest little potential for the stock to rise on an improved earnings outlook. The stock trades at 3.84 times tangible book value per share (tangible book value is based on the company's common equity minus intangibles such as goodwill); this is an attractive valuation were management to undertake steps in an attempt to unlock the true value of assets on the balance sheet. It trades also at 12.84 times cash flow per share, a sign that investors are assigning relatively little value to the company's non-cash assets and its earnings potential. WMT trades unfavorably at 0.48 times trailing 12-month sales, a 35.33% premium to the industry average price to sales ratio of 0.35. The company's market capitalization of $192,064.30 million is 40.67 times its latest quarterly net income (including depreciation), representing an excessive valuation. Value B Capital Structure B- P/E Analysis D Price/Book Ratio A+ Price/Cash Flow A Price/Sales Ratio D Market Value C Page 2
Fundamental Analysis Profitability: Adequate Operating Results WAL-MART STORES INC exhibits very solid operating performance with a good 21.3% return on equity. The company's leverage, with long term debt accounting for 36.43% of total capital, seems acceptable at these levels and poses no long term risk. The balance sheet looks strong considering the company had $6,578.00 million in cash on hand in the most recent quarter and $43,171.00 million in total debt. The company's latest annual net income of $13,400.0 million (for fiscal year ended January 31, 2009) compared to its $ 163,429 million in assets is a sign of healthy operating efficiency, reflected in an adequate Asset Utilization indicator grade. Especially important are WMT's operating margins of 7.3%, 40.9% higher than the 5.18% Industry average. Profitability A- Asset Utilization B+ Capital Utilization B+ Operating Margins B Relative Margins A+ Return on Equity B+ Quality of Revenues A- Cash Flow: Acceptable Cash Situation Leaves Room for Improvement WMT displays moderate year-to-year cash flow growth of 1.6% and a barely satisfactory EBITDA (earnings before interest, taxes, depreciation and amortization) margin of 6,917%. Given the company's current capital structure, its ability to service its debt seems very adequate, as suggested by a 7.5 debt to cash flow ratio, with total cash flow for the most recent quarter ended April 30, 2009 of $4,730 million compared with $4,657 million for the same quarter a year before. WMT's economic value added is extraordinary based on a low cost of debt and low cost of equity, when compared to a 12.99% return on investment. The company is financing its moderate growth at least in part organically supported by an average 19.60% reinvestment rate over the last four quarters. Cash Flow B+ Cash Flow Growth C EBITDA Margin B- Debt/Cash Flow A Interest Coverage B+ Economic Value A+ Retention Rate A- Page 3
Profile Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. The company's Walmart U.S. segment offers meat, produce, deli, bakery, dairy, frozen foods, floral, and dry grocery; health and beauty aids, household chemicals, paper goods, and pet supplies; electronics, cameras and supplies, photo processing services, cellular phones, cellular service plan contracts, and prepaid service and toys; fabrics and crafts, stationery and books, automotive accessories, hardware and paint, horticulture and accessories, sporting goods, outdoor entertaining, and seasonal merchandise; apparel, shoes, and jewelry; pharmacy and optical services; and home furnishings, housewares, and small appliances through discount stores, supercenters, and neighborhood markets, as well as through walmart.com. Its International segment includes various formats of retail stores and restaurants, including combination discount and grocery stores, supercenters, Sam's Clubs, hypermarkets, cash-ncarry stores, department stores, and general merchandise stores. The company's Sam's Club segment offers merchandise, including hardgoods, softgoods, institutional-size grocery items, and selected private-label items under the MEMBER'S MARK, BAKERS & CHEFS, and SAM'S CLUB brands through warehouse membership clubs in the United States, as well as through samsclub.com. As of January 31, 2009, it operated 891 discount stores, 2,612 super centers, 153 Neighborhood Markets, and 602 Sam's Clubs in the United States; and 28 units in Argentina, 345 in Brazil, 318 in Canada, 197 in Chile, 164 in Costa Rica, 77 in El Salvador, 160 in Guatemala, 50 in Honduras, 371 in Japan, 1,197 in Mexico, 51 in Nicaragua, 56 in Puerto Rico, and 358 in the United Kingdom, as well as 243 stores through a of joint ventures. The company was founded in 1945 and is based in Bentonville, Arkansas. Financials Last Qtr. Last Fiscal Yr. (04/30/2009) (01/31/2009) Income Statement Revenue $94,242.0 $402,298.00 Net Income $3,022.00 $13,400.00 EPS $0.77 $3.36 Cash Flow Balance Sheet $4,730.00 $19,993.00 Total Assets $162,090.00 $163,429.00 Total Debt $43,171.00 $42,218.00 All numbers in millions except for EPS Ratios Price/Earnings 14.7 D Price/Book 3.8 A+ Price/Cash Flow 12.8 A Price/Sales 0.5 D Revenue - 3Y Net Income - 3Y Debt/Cash Flow 7.5 A Return On Equity 21.3% B+ Operating Margin 7.3% B Share Data Price (08/07/2009) $49.29 52 Week High $63.17 52 Week Low $46.42 Total Debt - 3Y Free Cash Flow* - 3Y Average 3 Month Volume 18,883,004 Market Cap. $192,064.30 M Shares Outstanding 3,915,119,000 Float 2,231,618,000 * Calculated as Net Cash Flow Minus Cash Dividends Page 4
Stock Performance - 1 Year (%) 50 & 200 Day Moving Average - 1 Year WMT MG Index WMT 200 Day Moving Avg S&P 500 50 Day Moving Avg 10 YR Stock Price Market Share Share% Company 1Y% 3Y% Grade (total 5) 1 81.3 WAL-MART STORES INC-[1/5] 81.9 82.3 61.6 2 14.6 COSTCO WHOLESALE CORP 14.2 13.9 41.3 3 2.0 BJ'S WHOLESALE CLUB INC 2.0 2.1 48.9 4 1.8 PAO DE ACUCAR CIA BRASIL DIS 1.8 1.5 39.0 5 0.2 PRICESMART INC 0.2 0.2 75.7 Peer Comparison Company Grade Rating Revenue* EPS* Earnings PE Ratio ROE Market Cap (total 5) in millions Surprise** in millions PRICESMART INC 75.7 $306.5 $0.30 8.5% 11.4 15.1% $509.3 WAL-MART STORES INC-[2/5] 61.6 $94,242.0 $0.77 1.7% 14.7 21.3% $192,064.3 BJ'S WHOLESALE CLUB INC 48.9 $2,314.0 $0.46 1.7% 12.6 14.9% $1,717.0 COSTCO WHOLESALE CORP 41.3 $15,833.0 $0.48 0.5% 19.6 11.7% $21,786.9 PAO DE ACUCAR CIA BRASIL DIS 39.0 $2,017.4 $0.46-1.3% 34.4 N/A $3,402.1 *As reported for most recent quarter **Average of last six quarters Copyright 2006 MarketGrader.com Corp. All rights reserved. Any unauthorized use or disclosure is prohibited. Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments"). The information herein was obtained from various sources; we do not guarantee its accuracy or completeness. This research report is prepared for general circulation and is circulated for general information only. It does not have regards to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. MarketGrader does not make markets in any of the securities mentioned in this report. MarketGrader does not have any investment banking relationships. MarketGrader and its employees may have long/short positions or holdings in the securities or other related investments of companies mentioned herein. Officers or Directors of MarketGrader.com Corp. are not employees of covered companies. MarketGrader or any of its employees do not own shares equal to one percent or more of the company in this report. Page 5