Wal-Mart's Massive Strengths and Weaknesses
Margie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Wal-Mart (NYSE: WMT) has forever been a market leader, and a great company to have your money in. As an investor, I'm going to dig deeper and try to get an understanding of the inner workings of the company, and its Strengths, Weaknesses, Opportunties, and Threats, or what is commonly known as a SWOT analysis.
- A 2.3% dividend yield puts the stock well ahead on the yield curve than a 10-year treasury. The company raised its dividend by18% not long ago.
- For the most recent quarter, and I quote: “gross margin was 24.9%, 10 basis points better than the prior-year quarter. Operating margin was 6.7%, 10 basis points worse than the prior-year quarter. Net margin was 4.4%, 20 basis points better than the prior-year quarter.” .... The fact that operating margins were worse is not necessarily a positive indication about the efficiency with which the company was run, but that is just one possible explanation, and it's not a large dip. As the other numbers are better, I'm inclined to give this a pass.
- Wal-Mart has one of the best track records on the market as a stock, being one of the best equities of all time. It has underperformed the S+P 500 over the last 10 years, but it has performed well the last year.
- One huge strength Wal-Mart has is that it owns much of the property its stores lie on. Many of these properties were purchased years ago, and are not marked up on the balance sheet to necessarily reflect their current value.
- Warren Buffett of Berkshire Hathaway is a big investor. This should at least somewhat ease concerns from retail investors about the long-run viability of the company. Berkshre doesn’t make many losing investments.
- Although Amazon.com is working to make same-day delivery an option, it isn’t there yet. At Walmart.com, you can pick out what you want to buy online, go to your local Wal-Mart store, and pay for it in cash. This helps keep those without credit cards shopping at the retail behometh, even online. That's a definite advantage over Amazon.
- Over the years, Wal-Mart has created one of the most efficient distribution networks in retail, which helps enable it to be the "low cost leader."
- Wal-Mart enjoys tremendous negotiating leverage over companies it does business with, due to its mammoth size and volume.
- Walmart's online site does not offer the same selection as many stores.
- According to this Motley Fool column, “The company expects to earn $1.11 to $1.16 per share, which is up only slightly from a year ago and below the $1.18 in earnings per share analysts are currently expecting.” This correlates to weak February sales described below. Earnings are to be reported May 16th.
- Wal-Mart continues to expand internationally, which will be a key to raising earnings in the future.
- The company cefinitely has room to grow online and strengthen its web business. Having all those physical locations is a huge asset here.
- One thing that goes unnoticed is Wal-Mart’s desire to become a bank. Of course, all the “Too Big To Fail” banks employ massive numbers of lobbyists to prevent this from taking place (perhaps they fear for their overdraft fees?) but with the fairly recent introduction of financial services in Wal-Mart's stores, this is a real possibility which I haven't heard mentioned recently. Wal-Mart would likely cut the costs of banking (as is its model for business) and undoubtably find ways to market to the working poor and those without bank acounts, while also taking away a tremendous amount of business from other banks. Shareholders could be well-rewarded.
- According to this Motley Fool column, sales for the start of February were a nightmare. This is thought to be a result of higher gas prices and the payroll tax adjusting upwards squeezing low income investors.
- If Congress can't agree on a budget to reverse the sequester, government cuts would likely have a disproportionate effect on the poor, much like analysts’ thoughts on the recent payroll tax readjustment.
- Wal-Mart has a lot of competition at the low end of the market with Family Dollar and Target, and it faces an increasing threat from Amazon online.
- Amazon is taking over the online of world of retail. Despite being a Wal-Mart shareholder, I fulfill my orders through Amazon.com by a 4-1 ratio. And that’s as someone with a vested (albeit tiny) interest in shopping at walmart.com. Amazon owns the superiror brand name online.
I'm long Wal-Mart, and have been for years. It might be a little dicey to get in at current level, but I'm not selling, either. And in the long term, it's definitely a good buy. Just ask Warren Buffett.
margiecfl owns shares of Wal-Mart. The Motley Fool recommends Amazon.com and Berkshire Hathaway. The Motley Fool owns shares of Amazon.com and Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!