Wal-Mart's in Hot Water – Again. But Will it Matter?
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
For Wal-Mart investors the recent bribery scandal is yet another in a long line of hiccups surrounding the $202 billion retail behemoth. Avoiding medical costs by divvying up hours to maintain p/t status, not paying employees overtime wages, or any number of other potentially debilitating snafus over the years has fueled an almost manic dislike/distrust of all things Wal-Mart (NYSE: WMT). You don’t have to go far to find a Wal-Mart critic – and that’s certainly not going to change any time soon after the latest problems involving the company’s Mexico operations.
Some Background
If you don’t follow Wal-Mart closely you may be surprised just how big a presence the company has in Mexico. Outside the U.S., Mexico is by far the company’s biggest market. As the number one private employer in the country, one of every five Wal-Mart stores is located south of the border – that’s a lot of stores. And by no means is the company intending to rest on their laurels. In fact, the desire to rapidly expand even beyond their already huge market share is what has critics salivating and yelling “told ya’ so!” to any and all who will listen.
So just what did Wal-Mart allegedly do that has so many folks up in arms? According to those in the know – not to mention Wal-Mart’s own internal documents (oops) – the retailer slid about $24 million in bribes to local Mexican government officials to grease the skids during the permit process. And then – to add insult to injury – the internal investigation Wal-Mart had begun to look into the allegaions came to a sudden, if not unexpected halt.
All of this – according to the haters – is nothing new. Actually that statement needs to be qualified - it is new in that this time the company got caught. At least that’s what labor leaders and a long line of opponents are saying. Not surprisingly along with all the negativity several examples have re-surfaced here in the states of groups that were initially opposed to Wal-Mart expansion in their communities suddenly going quiet – after allegedly receiving a healthy “donation.”
Going Forward
For investors – whether the allegations are true or not – there are some decisions to be made. The stock is already down 5% - give or take – since the scandal broke and if today is any indication there’s a bit more to go.
As discussed in previous articles Wal-Mart – along with Target (NYSE: TGT) - remain two of the best values in the retail sector. By virtually all measures – P/E, book ratio, price to sales amongst others – both are outstanding opportunities. Not to mention the 2+% dividend yields each pay their shareholders, easily the highest in the industry.
But with the Mexico scandal potentially costing billions in fines if the critics have their way – even a company as large and well-entrenched as Wal-Mart will feel it, at least in the short-term.
So what’s an investor to do? In the near-term Target just became an even better option, offering much of the same value without all the uncertainty. Long-term investors take heart – Wal-Mart has been down this path before and clearly came out the other end just fine, and they’re likely to do so again.
The investment opinions included are just that, opinions. Investing involves risk, as you well know, so consider your decisions wisely. Tim holds no position in the securities mentioned in this article.
