RETAILER OF THE CENTURY - NYUpages.stern.nyu.edu/~iag/presentations/wmt.pdf · RETAILER OF THE...

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WAL*MART STORES, INCORPORATED

PRESENTED BY: FLETCHER LEUNG

NYSE: WMTRETAILER OF THE CENTURY

INVESTMENT ANALYSIS GROUP

Checklist

Industry Overview• WMT Specs• Potential Growth• Downside Risk• Valuation


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• Economy is slowing…

Industry Overview


• Recession is probably coming…

Industry Overview


3

• A typical portfolio

Industry Overview


All-Star Performance

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

9/15

9/22

9/29

10/6

10/13

10/20

10/27 11

/311

/1011

/1711

/24 12/1

Time

% R

etur

n

All-Star SPY

• Reverse wealth effect…

Industry Overview


•All those nice things are suddenly out of reach…

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• As a consumer where does this lead you to…

Industry Overview


Suppliers

Substitutes

Existing Competitors Buyers

New Entrants

PORTER’S FIVE FORCES

• Less discretionary dollars from the reverse wealth effect.

• Consumer spending more money on everyday goods than on discretionary items

Industry Overview


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Checklist

• Industry OverviewWMT Specs

• Potential Growth• Downside Risk• Valuation


• 5 different divisions under the Wal*Mart umbrella. – Discount Stores– Supercenters– International– Wal-Mart.com– Wal-Mart Reality

WMT Specs


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• Strong global presence 4 continents– Wal-Mart International– 2373 Discount Stores– 1104 Supercenters– 512 SAM’s Clubs

• Strengthening Internet presence– Wal-Mart.com


WMT Specs

• Flagship Division• Discount Retailer• 40,000-50,000 sq ft of retail space• 36 Departments• Have own brands


The First Wal*Mart

WMT Specs

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• One stop shop• Full line of grocery and general merchandise• First Supercenter opened in Mar. 1, 1988• 100,000 to 210,000 sq. ft of retail space• 200 to 550 associates (employees)


WMT Specs

• Members-only warehouse club• Stock only 3,500 most commonly used items• Sold in bulk


WMT Specs

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• Neighborhood Market, first introduced in 1998• Quasi grocer and department store• Cater more close to individual markets • Compliment Supercenters


The First Wal*Mart

WMT Specs

• Joint-venture between Wal-Mart Stores and Accel Partners

• Majority owned by WMT• Independent from Wal*Mart


WMT Specs

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• Sale and leasing of real estate adjacent to WMT stores.

• In-store leasing– Banks– Cooked food service– Retail


WMT Specs

Sales, by Segment

Other5%

SAM's Clubs15%

International14%

Wal-Mart Stores

66%


WMT Specs

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Checklist

Industry Overview• WMT Specs

Potential Growth• Downside Risk• Valuation


• History of phenomenal growth

• 11 stock spits since 1970.

• Outperform industry

020406080

100120140160180

1996 1997 1998 1999 2000

Year

Net Sales (billions)

Potential Growth


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• Supercenters to drive growth• Over the next five years:

– Grow space @ 17%– Sales increase @ 22%– Operating profit to grow by 24%

Potential Growth


Supercenters vs. Discount Stores

Superstores20%

Discount Stores48%

Other32%

Potential Growth


66 percent of total sales

Supercenters & Neighboorhod vs. Discount Stores

Neighbrhood Market

16%

Superstores42%

Discount Stores12%

Other30%

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• Neighborhood Market Stores– Smaller than Supercenters– Allow WMT to penetrate markets which are not

feasible to Supercenters– Increased flexibility

• Complementing Superstores• Expand into a new market segment

Potential Growth


• Porter’s Five Forces revisited…

Potential Growth


Suppliers

Substitutes

Existing Competitors Buyers

New Entrants

Lots of influence suppliers, lower COGS

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• Has the backing of a bricks & mortar firm• Slowing growth at competitors, e.g.

Amazon.com• Robust holiday traffic at Walmart.com• Afford the capital expenditures needed

– Must generate $175 million in losses before it can affect EPS by $0.02 per share

Potential Growth


• Lower interest rates… • Old Economy company, directly feel benefits of

rate cutes• Can go into bond market to get financing @

lower rate.

Potential Growth


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Checklist

Industry Overview• WMT Specs• Potential Growth

Downside Risk• Valuation


• Already trading at a premium to the market above historical average.

• But still below historical high premium of 86%

Downside Risk


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• Trouble brewing in Germany– Losses in 2001 are expected to be north of $200

million

• Devaluation of foreign currencies• Entrance into new countries and markets, with

higher than expected start-up expenses

Downside Risk


• WMT’s sheer size can insulate it from discrete impacts on its P&L.

• WMT is like a diversified portfolio

Downside Risk


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Checklist

Industry Overview• WMT Specs• Potential Growth• Downside Risk

Valuation


Valuation


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Valuation


Analysis as of February 2nd, 2001 WMTROE 23.060%Rention Rate (Plowback) 83.448%First Stage Growth Rate 20.000%Second Stage Growth Rate 15.000% pd 6 to 10Perpetuity Growth Rate 5.000%Supernormal Period 5 20.00%Cost of Equity 10.540%Tax Rate 36.750% 59.28$ Shares Outstanding (mil) 4,466.665$

in millions except per share valuesYear 0 1 2 3 4 5 6Current Assets 24,356.00 29,227.20 35,072.64 42,087.17 50,504.60 60,605.52 69,696.35 Current Liabilities 25,803.00 30,963.60 37,156.32 44,587.58 53,505.10 64,206.12 73,837.04 Working Capital (1,447.00) (1,736.40) (2,083.68) (2,500.42) (3,000.50) (3,600.60) (4,140.69)

Per share values:EBIT 1.8602 2.2323 2.6787 3.2145 3.8574 4.6288 5.3232 Add Dep & Amort 0.5317 0.6381 0.7657 0.9188 1.1026 1.3231 1.5215 Minus Principle Repay of Debt (0.1451) (0.1451) (0.1451) (0.1451) (0.1451) (0.1451) (0.1451) Minus Preferred DividendsPlus Proceed, new debt & pref 2.3767 Minus CapEx per share (0.8693) (0.8597) (1.0316) (1.2380) (1.4856) (1.7827) (2.0501) Minus Change WC per share 0.1166 0.0648 0.0777 0.0933 0.1120 0.1344 0.1209 Free Cash Flow to Equity (FCFE) 3.01 0.92 1.16 1.44 1.78 2.19 2.52 PV Factor 1.00 0.90 0.82 0.74 0.67 0.61 0.55 PV of FCFE 3.01 0.83 0.95 1.07 1.19 1.33 1.38

Intrinsic Value of WMT 59.28$ Current Price of WMT 55.43$

Valuation


7 8 9 10 1180,150.80 92,173.42 105,999.44 121,899.35 127,994.32 84,912.59 97,649.48 112,296.91 129,141.44 135,598.52 (4,761.79) (5,476.06) (6,297.47) (7,242.09) (7,604.20)

6.1216 7.0399 8.0959 9.3102 9.7758 1.7498 2.0122 2.3141 2.6612 2.7942

(0.1451) (0.1451) (0.1451) (0.1451) (0.1451)

(2.3576) (2.7112) (3.1179) (3.5856) (3.7649) 0.1391 0.1599 0.1839 0.2115 1.2163

3.15 3.89 4.74 5.74 127.00 0.50 0.45 0.41 0.37 0.33 1.56 1.74 1.93 2.11 42.18

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Valuation


72.6925%88.3730%

59.2820%47.8915%38.2810%30.245%59.2820% (current)Price:Growth Rate:

Sensitivity Analysis:

Valuation


KMWMT

-1.72%23.06%ROE

5.321.35Price/Sales

N/A39.57P/Earnings

0.731.95Price/Book

0.970.94Beta

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Valuation


TGTWMT

21.02%23.06%ROE

0.981.35Price/Sales

28.4939.57P/Earnings

5.721.95Price/Book

1.120.94Beta

Valuation


COSTWMT

15.55%23.06%ROE

0.671.35Price/Sales

34.2839.57P/Earnings

4.791.95Price/Book

1.180.94Beta

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• BLANK?

Valuation


• Purchase at $47• Sell if:

– If the Supercenter expansion falters– If the Neighborhood Market scheme encounters

problems.

Valuation


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This communication may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on the beliefs of the Company and its management. When used in this document, the words "anticipate," "believe," "continue," "estimate," "expect," "intend," "may," "should," and similar expressions are intended to identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions, including, but not limited to, the risk that the Company may not be able to implement its growth strategy in the intended manner, risks regarding currently unforeseen competitive pressures and technological changes. In addition, the Company's business, operations and financial condition are subject to the risks, uncertainties and assumptions which are described in the Company's reports and statements filed from time to time with the Securities and Exchange Commission. Should one or more of those risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein.

This transmission was intended only for the party or parties to whom it was directed. If you have received the transmission in error or by other means, it must be destroyed and by no means circulated, copied or otherwise duplicated without the express permission of its author(s). Nothing in the contents transmitted should be construed as an investment advisory, nor should it be used to make investment decisions. There is no express or implied solicitation to buy or sell securities. The author(s) may have positions in the stocks or financial relationships with the company discussed and may trade in the stocks mentioned. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock. All information should be considered for information purposes only. No stock exchange has approved or disapproved of the information contained herein.

Disclaimer


RETAILER OF THE CENTURY - NYUpages.stern.nyu.edu/~iag/presentations/wmt.pdf · RETAILER OF THE...

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