Market Capitalization: $643.86 Billion
Shares Outstanding: 8.04 Billion
Sector: Consumer Defensive
Industry: Discount Stores
Analysis as of: October 13, 2024

1. Company Overview

Walmart Inc. (NYSE: WMT) is a multinational retail corporation headquartered in Bentonville, Arkansas, USA. Founded in 1945 by Sam Walton, Walmart has grown to become one of the world’s largest retailers, operating a chain of hypermarkets, discount department stores, and grocery stores. The company employs over 2.1 million associates worldwide and serves millions of customers each week.

Business Segments:

• Walmart U.S.: The largest segment, operating retail stores in all 50 states, Washington D.C., and Puerto Rico. Offers a wide range of merchandise including groceries, health and wellness products, entertainment, apparel, and home goods.
• Walmart International: Operates in 23 countries outside the U.S., including Mexico, Canada, China, India, and the United Kingdom. Offers similar products and services as the U.S. segment, tailored to local markets.
• Sam’s Club: A membership-only warehouse club offering bulk merchandise and services to small businesses and consumers.

E-commerce Initiatives:

• Online Platforms: Walmart.com, Flipkart.com (India), and other e-commerce websites and mobile applications.
• Digital Transformation: Investment in technology and infrastructure to enhance online shopping, including curbside pickup and home delivery services.

Strategic Focus:

• Omnichannel Retailing: Integrating physical stores with online platforms to provide seamless shopping experiences.
• Private Brands: Developing and marketing private label brands to improve margins and customer loyalty.

2. Financial Performance

a. Revenue and Growth

• Trailing Twelve Months (TTM) Revenue (as of July 31, 2024): $665.04 Billion
• Year-over-Year (YoY) Revenue Growth (TTM): +5.43%

Revenue Trend (in Millions USD):

Analysis:

Walmart has demonstrated consistent revenue growth over the past several years, with TTM revenue reaching $665.04 billion. The growth is attributed to strong performance in both physical stores and e-commerce platforms. Strategic investments in omnichannel retailing and the expansion of online grocery and delivery services have contributed to this upward trend.

b. Profitability

• Net Income (TTM): $15.55 Billion
• Earnings Per Share (EPS, TTM): $1.92
• Profit Margin: 2.34%
• Return on Equity (ROE): 18.53%
• Return on Assets (ROA): 6.95%

Analysis:

Walmart’s net income reflects a profit margin of 2.34%, which is typical for the retail industry due to its low-margin, high-volume nature. The EPS increased by 11.17% over the previous year, indicating improved profitability on a per-share basis. The ROE of 18.53% signifies effective utilization of shareholder equity to generate profits, while the ROA of 6.95% demonstrates efficient asset management.

c. Gross Margin and Operating Margin

• Gross Margin (TTM): 24.63%
• Operating Margin (TTM): 4.26%

Analysis:

A gross margin of 24.63% indicates that Walmart retains approximately $0.25 of each dollar of revenue after accounting for the cost of goods sold. The operating margin of 4.26% shows that after covering operating expenses, the company retains about $0.04 of each revenue dollar as operating income. These margins are consistent with industry norms for large-scale retailers.

d. Cash Flow

• Operating Cash Flow (TTM): $33.88 Billion
• Capital Expenditures (CapEx, TTM): – $21.90 Billion
• Free Cash Flow (FCF, TTM): $11.99 Billion
• Free Cash Flow Margin: 1.80%
• Free Cash Flow Per Share: $1.48

Analysis:

Walmart generates substantial operating cash flow, enabling it to invest in growth initiatives, pay dividends, and repurchase shares. The significant CapEx reflects investments in store renovations, e-commerce infrastructure, and supply chain enhancements. The positive free cash flow, though lower than previous years due to increased investments, supports the company’s financial flexibility.

3. Balance Sheet

• Total Assets (as of July 31, 2024): $254.44 Billion
• Total Liabilities: $163.67 Billion
• Shareholders’ Equity: $90.77 Billion
• Total Debt: $63.15 Billion
• Cash & Equivalents: $8.81 Billion
• Net Debt Position: – $54.34 Billion
• Net Cash Per Share: – $6.76
• Debt-to-Equity Ratio: 0.70
• Current Ratio: 0.80
• Quick Ratio: 0.18
• Working Capital: – $18.75 Billion

Analysis:

• Liquidity: The current ratio of 0.80 and quick ratio of 0.18 indicate that Walmart may not cover all short-term liabilities with short-term assets. However, this is typical in retail due to fast inventory turnover and efficient cash management practices.
• Leverage: The debt-to-equity ratio of 0.70 reflects moderate leverage. Walmart’s strong cash flows and investment-grade credit ratings suggest that debt levels are manageable.
• Working Capital: Negative working capital is common in retail, as companies often pay suppliers after receiving cash from sales, effectively financing operations through accounts payable.

4. Valuation

• Current Stock Price (as of October 11, 2024): $80.10
• Price-to-Earnings (PE) Ratio (TTM): 41.74

• Forward PE Ratio: 31.26
• Price-to-Book (PB) Ratio: 7.62
• Price-to-Sales (PS) Ratio: 0.97
• Price-to-Free Cash Flow (P/FCF) Ratio: 53.72
• Enterprise Value (EV): $704.55 Billion
• EV/EBITDA Ratio: 17.28
• EV/EBIT Ratio: 24.86
• PEG Ratio: 3.49

Analysis:

• PE Ratio: The high PE ratio suggests that investors are willing to pay a premium for Walmart’s earnings, possibly due to its market leadership and growth prospects.
• Valuation Multiples: Elevated PB and EV/EBITDA ratios indicate that the stock may be overvalued relative to book value and earnings before interest, taxes, depreciation, and amortization.
• PEG Ratio: A PEG ratio above 1 implies that the stock may be overvalued relative to its earnings growth rate.

5. Market Performance

• 52-Week Range: $49.85 – $81.60
• 52-Week Price Change: +52.48%
• Beta: 0.52

Analysis:

• Stock Appreciation: The significant increase in stock price over the past year reflects strong investor confidence and positive market sentiment toward Walmart’s strategic initiatives.
• Volatility: A beta of 0.52 indicates lower volatility compared to the overall market, making Walmart potentially attractive to conservative investors seeking stability.

6. Financial Health and Risks

a. Liquidity

• Current Ratio: 0.80
• Quick Ratio: 0.18

Analysis:

While liquidity ratios are low, Walmart’s efficient cash management and strong cash flows mitigate liquidity risks. The company can meet short-term obligations through consistent revenue generation and favorable payment terms with suppliers.

b. Leverage

• Debt-to-Equity Ratio: 0.70
• Interest Coverage Ratio: 10.23

Analysis:

The moderate debt-to-equity ratio and strong interest coverage indicate that Walmart can comfortably service its debt. The company’s investment-grade credit ratings support its ability to access capital markets if needed.

c. Profitability and Cash Flow

• Consistent Profitability: Stable profit margins and returns on equity/assets demonstrate operational efficiency.
• Strong Cash Flow: Robust operating cash flow supports capital investments, dividend payments, and share repurchases.

d. Operational Risks

• Competitive Pressure: Intense competition from traditional retailers and e-commerce giants like Amazon could impact market share and margins.
• Margin Pressure: Rising labor costs, supply chain disruptions, and inflationary pressures could squeeze profit margins.
• Technological Changes: Rapid technological advancements require continuous investment to enhance digital capabilities and customer experience.

e. Market Risks

• Economic Conditions: Consumer spending is influenced by economic cycles; however, Walmart’s value proposition often makes it resilient during downturns.
• Regulatory Environment: Changes in trade policies, tariffs, and regulatory compliance could affect operations and profitability.

7. Conclusion 

Pros:

• Market Leadership: As a global retail leader, Walmart benefits from economies of scale and extensive market reach.
• Growth Initiatives: Investments in e-commerce and omnichannel strategies position the company for continued growth.
• Financial Stability: Strong cash flows and consistent profitability provide a solid financial foundation.
• Dividend History: A history of 51 years of dividend growth makes Walmart attractive to income-focused investors.

Cons:

• High Valuation: Elevated valuation metrics may suggest limited upside potential and could deter value investors.
• Low Profit Margins: Thin margins inherent in retail require vigilant cost control to maintain profitability.
• Competitive Landscape: Ongoing competition necessitates continuous investment, potentially impacting margins.
• Debt Levels: While manageable, significant debt requires careful monitoring, especially in changing economic conditions.

Disclaimer:

This analysis is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Investing in stocks involves risks, including the potential loss of principal. Past performance is not indicative of future results. Investors should conduct their own research or consult a qualified financial advisor before making investment decisions.