This website uses cookies to ensure you have the best experience. Learn more

Walmart Case Essay

1301 words - 6 pages

This paper is examining Wal-Mart Stores, Inc. and analyzing the value of its stock to make a buy/sell recommendation. The valuation is based on a variety of techniques to price the shares and then compare the intrinsic value with the currently trading market price: Dividend Discount model, CAPM, Three-Stage Approach and the Price/Earnings Multiple Approach. Executive Summary Founded by Sam Walton, Wal-Mart is the largest retailer in the world providing a huge assortment of merchandise, electronics, hardware and groceries at “everyday low prices”. 2010 Wal-Mart’s net sales were more than $405US billion. Wal-Mart had an initial stock price of $16.50/share in 1970. Since then Wal-Mart’s ...view middle of the document...

The beta of less than 1 shows that Wal-Mart is less volatile than the market. Beta of 0.66 is also in line with the grocery and food industry. Wal-Mart is providing affordable groceries for everybody. Food is a physiological need and is therefore located on the bottom of Maslow’s hierarchy of needs. People will always have to buy groceries, even in recession they are more likely to cut other luxurious goods or services back if the money is tight. Therefore Wal-Mart’s risk premium can be calculated as the product of beta times the Market Risk: . The expected rate of return (Ke) then is: . So for the current stock price (Po) we then get:

Therefore the DDM and the CAPM are valuing Wal-Mart’s stock higher than the recent closing price of $53.48. According to DDM, the Wal-Mart stock appears to be undervalued assuming the dividend growth, beta and MRP estimates are correct.

The Three-Stage Approach is dividing the future growth of Wal-Mart in three periods. Assumption for this model is that the abnormal growth years and transition years must total 17. This model is based on a lot of assumptions and input variables which are critically for the outcome price. The case and this report are assuming an initially growth in earnings of 23.3% which is in line with the geometric average of the Annual Earnings Growth % (in Exhibit 3), as well as a target cost of capital of 12%. The initial growth of 23.3% seems very high at first, but the case also mentions that there is an abnormal high growth expected in the next five years. Initial EPS is 2010s EPS of $3.72 times the geometric mean of 23.3%, which equals $4.59 (used as initial growth rate of EPS). I am also assuming 2010s payout ratio of 29.3% to be my initial payout ratio for the three stage approach, therefore the payout rate in the transition years only increases by 1.21%. I am assuming a payout rate of 45% at maturity.

Given all the assumptions above, the three stage approach is giving us a theoretical price of $127.87, which is a lot higher than the current closing price. Thus, Wal-Mart is undervalued. This report will include two additional scenarios: 1.) Let’s assume the initial growth rate of EPS is smaller than the geometric average (23.3%) due to economic circumstances such as recession. From 2009 to 2010 the EPS grow 4%. If we assume that it grows 4% from 2010 to 2011 as well, the input for the three stage approach would be 15%, which would change the outcome:

The different assumptions change the theoretical price drastically. According to the three stage approach with these modified assumptions, the theoretical price is $60.65, which is still more than the last closing price –...

Other assignments on Walmart Case

Walmart Essay

1310 words - 6 pages 44816 Voronova Ekaterina g. what are other products available in the market in conjunction with the main animation movie? "How to Train Your Dragon" is the second part of the animation movie, which was filmed in 2010. It is also planned the release of the third part of this animation movie «How to Train Your Dragon 3" in 2017. Besides Film series on the market as well have Television series. On October 12, 2010 it was announced that

Walmart Analysis

1312 words - 6 pages it located nearby a few sex shops. 3c. To combat the issue of lack of scales, Wal-Mart has been setting up more stores. For example in the case given, Wal-Mart has bought Bompreço, they did not change the name of the stores and they ranged from small neighborhood grocers to large American-style hypermarkets. Wal-Mart now has 295 storesin Brazil and ranks third after Carrefour from France and their market leader Companhia Brasileira de

Walmart Batting

953 words - 4 pages Battling Wal-Mart by Neal Peirce The Wal-Mart Watch campaign, a labor-environmental group highly critical of America's mega-mega retailer, recently launched more than 1,000 events nationwide for its "Higher Expectations Week." "Wal-Mart: The High Cost of Low Price," a scathing documentary by independent filmmaker Robert Greenwald with a focus on Wal-Mart's business tactics and treatment of workers, began to play to audiences across the country

Walmart: Mgt 203

764 words - 4 pages . Wal-mart has shown that there are different options, solutions and approaches in every problem that a firm may encounter. When there has limited or no demand for their products, they have been doing different practices and they have been innovating to continuously compete, as earlier mentioned. In the case of the supply chain management, they did not resort to only one kind of distribution system; they have different systems in different

Xmgt/230 Organizational Structure

638 words - 3 pages XMGT/230 Week 6 Assignment Organizational Structure One organization that I am very familiar with as a consumer and as an ex-employee is Walmart. Walmart is one of the largest non-union successful corporations in the United States. Walmart’s organizational structure, organizational function, and organizational design make it a place consumers rely on for a number of things and for a number of reasons. The organizational

Walmart’S Expansion In Africa: A New Exploration Strategy

3069 words - 13 pages “developing the people, driving the productivity loop, winning in global ecommerce, reinvigorating customer focused culture, and leading on social and environmental issues” (2012 Annual Report). IV. APPLICATION TO COURSE WORK V. CASE QUESTIONS 1. Detail the growth of Walmart and its international experience Walmart key focus was the customer satisfaction, relied on three principles: respect for the individual, service to customers and to strive

Ratio Analysis Under Different Accounting Rules

1255 words - 6 pages Shareholder’s equity. Comparing the three companies, Walmart has the highest ROE, more than twice of Sainsbury and more than three times of Seven and I holdings. Amongst stock market participants, Japanese companies are known for its low ROE especially compared to American firms and in case of seven and I holdings, it is consistent with that notion (on a side note, 7&I Holdings’ ROE goal is 10%). DuPont Method It is clear that Walmart has quite a

Omega Paw Case Study

1128 words - 5 pages Name: Date: February 4, 2014 Case Title: Omega Paw Inc. 1. Key Events: • In September 2012, Ebert invented a self cleaning litter box and had set up a company to distribute this and other pet care products across north America • In August 2011 after 4 months of advertising in magazines and tv commercial,s, omega sold 2500 units, but there was an issue with the moulds and people who ordered had to wait a few weeks • In August 2011

Management

374 words - 2 pages able to file to the U.S Supreme Court from the state Supreme Court. 3. What type of jurisdiction did the federal courts have in this case? Was it a federal question case or a diversity of citizenship case? Why? This case is a diversity of citizenship case, as one million women from the whole country had filed the case against Walmart, this case was one of a kind in the American history.

Final Paper For Accounting 205

2226 words - 9 pages Final Paper ACC 205 September 29, 2014 Walmart Company Overview Walmart helps people around the world save money and live better -- anytime and anywhere -- in retail stores, online and through their mobile devices. Each week, more than 245 million customers and members visit our nearly 11,000 stores under 71 banners in 27 countries and e-commerce websites in 10 countries. With fiscal year 2014 sales of approximately $473 billion

Minit Lube Case Study

877 words - 4 pages Name: Cierra Holloway Week 2: Case Analysis: Minit-Lube Discussion Questions Directions: Read the case and then answer each question in short paragraph form. This assignment is worth 100 points. A substantial market exists for automobile tune-ups, oil changes, and lubrication service for more than 250 million vehicles on U.S. roads. Some of this demand is filled by full-service auto dealerships, some by Walmart and Firestone, and some

Similar Documents

Walmart Essay

2126 words - 9 pages Summary of Case Table of Contents Summary of Case History Overview: * Vision, Mission, and Goals Major Issues Swot Analysis CSR Analysis - “Buy American” program and “Environmental Awareness” program Sam Walton: A motivational Genius? Walmart’s responsibility to it employees Stakeholder analysis Competitors Ethical Practice towards Walmart Walmart’s and the international arena Critique Recommendations References History

Walmart Essay

982 words - 4 pages consuming (“Basics of choosing a survey population”, 2008). Some examples of instruments used to collect data are : informal and formal surveys, direct and participating observation, interviews, focus groups, expert opinions, case studies, existing records and literature search (Carroll) In this particular study the instruments that will be used is informal and formal surveys , case studies and interviews. Surveys can be on paper and handed out to

Walmart Essay 1421 Words

1421 words - 6 pages in Sustainable Development in May 2010. According to a December 2009 article posted by World Environment Center on the Corporate Social Responsibility Newswire Wal-Mart is, “A leader in sustainability, corporate philanthropy and employment opportunity, Walmart ranked first among retailers in Fortune Magazine's 2009 Most Admired Companies survey.” Since the question is only asking if they are doing enough to become “more” sustainable, I would

Walmart Essay 395 Words

395 words - 2 pages standpoint as this will help me someday when I plan to open my own company. I look forward to knowledge, tips, and information I will gather by the time I have completed this project. References Sam Walton. (n.d.). Wikipedia, the free encyclopedia. Retrieved September 12, 2012, from http://en.wikipedia.org/wiki/Sam_Walton Walmart Corporate - Our Story. (n.d.). Walmart Corporate - We save people money