Wal-Mart Stores, Inc. (NYSE: WMT)
Just about everyone knows the Walmart brand. It is one of the most valuable companies in the world. Many people even know the family behind the company because the children of Walmart’s founder, Sam Walton, are always in the upper echelon of any list of the world’s billionaires. At the moment though, no one really knows where Walmart is headed.
From July 2012 until November of 2014, Walmart shares traded within a range of $67 to $82. Earnings remained consistent and strong but flat. All of that changed in November of 2014. When third quarter earnings were announced a few percentage points over consensus estimates, bullish investors piled in. Undoubtedly with a little help from the excitement of holiday spending season, shares hit an all-time high of 90.97 on January 13th. Since then, it has been a steady grind back to familiar territory within its $67 to $82 range. Another small earnings beat in Q4 and a small earnings miss in Q1 announced on May 19th have left investors and Walmart itself with a complicated picture.
There are certainly reasons to doubt the future of the retail giant. Walmart’s decision to raise their minimum wage to $9 within the company is weighing heavily on their bottom line, especially being the nation’s largest private employer. The strength of the US dollar is also hurting growth in markets overseas. Domestically, much of the extra cash in consumers’ pockets from low gas prices that experts predicted would end up in retail spending has instead gone to paying down debts. They have also been dealing with increased spending on their e-commerce ventures. They are battling with online retail giants like Amazon and Google by offering a new $50 yearlong unlimited shipping program through their website to compete with programs like Amazon Prime. Many analysts have recently lowered their price targets in accordance with all of this news.
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On the other side, some investors see Walmart’s recent fall as an opportunity. The sector of their business that has seen the healthiest growth recently is where they are focusing their expansion efforts. Their smaller Neighborhood Market stores saw growth of 7.9% in comparable store sales and they are stepping up expansion efforts under that name. These smaller Walmarts are providing access to previously untapped urban consumers because their reduced size allows them to go where huge Walmarts have never been able to go before. And their increased spending and expansion into the e-commerce sphere is also paying off. Online business grew by 17% in this last quarter. And the cherry to top it all off, shares continue to pay a 2.5% dividend.