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Wal-Mart Fairly Valued at $120 a Share

WMT to Do Half a Trillion Dollars in Sales Soon

Written by Brian Hicks
Posted April 2, 2012 at 5:42PM

Two weeks ago, I showed you how the world’s largest company, Apple, was fairly valued at $4,000 a share.

Today I will show how the world’s largest retailer, Wal-Mart, should double in price in a few years.

The Greatest Wealth Producer the World has Ever Seen?

By all accounts, Wal-Mart has been one of the greatest income plays in history. It has raised its dividend for 37 consecutive years — and it raised it again this year.

That’s right — since 1974 WMT has raised its dividend every single year.

You could’ve retired comfortably just from the dividend growth!

But there’s a lot more...

You see, Wal-Mart’s stock has also created the most millionaires, beating out the likes of Apple, Google, and even Microsoft.

Since going public in August 1972, Wal-Mart’s stock has risen an incredible 121,900%. And that's a current calculation based on today's stock price.

A $1,000 investment in Wal-Mart the day it went public would be worth $1,220,000 right now.

I love Wal-Mart’s management. They're 100% dedicated to their customers, and they’re dedicated to increasing shareholder value — two must-have factors in any successful business.

And the proof is in the pudding...

Wal-Mart is a retail behemoth. It serves customers and members more than 200 million times per week at more than 10,130 retail units under 69 different banners in 27 countries.

With fiscal year 2012 sales of $443 billion, Wal-Mart employs 2.2 million people worldwide.

In fact, behind the U.S. Dept of Defense and the Chinese military, Wal-Mart is the third largest employer in the entire world.


It doesn’t stop there...

Wal-Mart has one of the largest trucking fleets in the world: With over 8,000 drivers, 7,000 tractors, and 53,000 trailers, Wal-Mart’s fleet logged 792 million miles in 2011.

As big as Wal-Mart is, you’d think they have reached the limits to their growth.

You would be wrong...

In February of this year, Wal-Mart announced it would undergo record expansion in Canada.

Wal-Mart Canada plans to spend more than $750 million over the next year to open, relocate, or remodel 73 retail stores, including 39 former Zellers locations Wal-Mart purchased last year.

The company said more than half of the 73 projects will become supercenters, which offer an array of groceries as well as general merchandise.

They operate 333 stores in Canada, and plan to open up 42 more stores by the end of the year. The expansion will add 4.6 million square feet of retail space in Canada this year.

But similar to the discussion about Apple’s future growth, many analysts are arguing that Wal-Mart is also running into the “law of large numbers.”

I think they have it wrong.

So let’s run through the numbers, like we did with Apple...

Currently Wal-Mart trades at a trailing 12-month P/E multiple of 13.5. Its forward P/E multiple is 11.5.

In my opinion, Wal-Mart is selling at a discount to most of its peers.

Costco, for example, trades at a P/E multiple of 26, yet has similar growth percentage rates as Wal-Mart. But it’s Target that really has me bullish on Wal-Mart...

Here’s the annual revenue for Target since 2008 (in billions):

2008-01     2009-01     2010-01     2011-01    2012-01     TTM

63,367        64,942       65,357        67,394       69,865       69,865

In terms of percentage growth, it’s not exactly a barn-burner...

Now here’s Wal-Mart’s annual revenue growth since 2008:

2008-01     2009-01      2010-01       2011-01        2012-01    TTM

378,799     405,607       408,214       421,849        446,950     446,950

Wal-Mart, though much larger than Target, has grown its top line 70% higher than Target (based on year-over-year percentage growth). Yet both Target and Wal-Mart trade at current P/E multiple of 13.5.

Back to Costco.

Costco grew earnings 7% between 2010 and 2011, yet the market awards it a P/E multiple of 26.

Something is out of whack... and I think it spells a re-rating for shares of Wal-Mart to the upside.

Next year, Wal-Mart is predicted to do nearly half a trillion dollars in sales.

I believe Wal-Mart will gradually be awarded a higher P/E multiple more in line with Costco’s...

That would be a double for Wal-Mart.

But there’s more than one way to make money off of Wal-Mart besides owning the stock. And I’ll tell you about it later this week.

The original bull on America,

Brian Hicks Signature

Brian Hicks

Brian is a founding member and President of Angel Publishing and investment director for the income and dividend newsletter The Wealth Advisory. He writes about general investment strategies for Wealth Daily and Energy & Capital. Known as the "original bull on America," Brian is also the author of the 2008 book, Profit from the Peak: The End of Oil and the Greatest Investment Event of the Century. In addition to writing about the economy, investments and politics, Brian is also a frequent guest on CNBC, Bloomberg, Fox and countless radio shows. For more on Brian, take a look at his editor's page.


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