Walmart: Creating strong customer base through better pricing

strategy
I initiate coverage on WMT with a BUY recommendation based on a target price of First Gen Corporation
$87, implying an upside of 22.5%. I derive my target price from a DCF valuation model
using a WACC of 7.1% and a terminal growth rate of 2%. Recommendation: BUY
Current price: $71
Highlights: Target price: $87
• Better pricing strategy to retain market share Up/(downside): 22.5%
• Building strength via its emerging digital operation model
• Transition to omnichannel marketplace

Stock data
Risks: Failure to resolve fuel supply, Identifying and responding to consumer trends and
Stock data
preferences, Strong competition from others.
RIC code WMT.N
Prakash Kandel Index .INX
S&P 500 (17 July 2024) 5,588.27
Prakashkandel99@gmail.com
Market cap (US$ m) 574,659
Valuation table Shares outstanding (million) 8,090
Year end Jan 23A 24A 25E 26E 27E Par (US$) 0.10
PE (x) 37.5 28.1 27.9 27.6 25.3
Recurring net profit growth (%) (21.3) 32.0 0.6 1.0 8.8
Recurring EPS (US$) 1.9 2.5 2.5 2.6 2.8
Recurring EPS growth (%) (19.2) 33.5 0.8 1.0 8.8
PBV (x) 7.5 6.8 6.2 5.7 5.2
BVPS (US$) 9.5 10.4 11.5 12.6 13.8
ROE (%) 14.6 19.3 17.9 16.5 16.7
DPS (US$) 0.7 0.8 0.9 0.9 1.0
Dividend yield (%) 1.1 1.1 1.3 1.3 1.4
Enterprise value (US$ m) 610,656 611,683 604,510 596,993 588,212
EV-to-EBITDA (x) 13.2 11.2 10.9 10.3 9.7

Sources: Stotz academy resources, company report 11 August 2024 1

WMT: Strengthening customer base with EDLP philosophy

Better pricing strategy to retain market share

Story Walmart’s pricing strategy is based on the concept of Everyday Low Price (ELDP). It has resulted 15% lower
average price for common goods compared to competitors as per report published by Price economics.
Walmart has 22% market share in US grocery market and 19% higher customer loyalty rate compared to its
Sales competitors in 2024 as reported by Statista shows the impact of EDLP philosophy. Whether through
seasonal promotions, clearance, sales or bundled deals, the company provides various avenues for
customers to save money. So pricing has been important factor to retain market.
FVMR Building strength via its emerging digital operation model
After covid pandemic online sales has increased significantly all over the world. Walmart online revenue has
P5F increased from US$25B in 2019 to $100.1 billion in FY2024, up 21.9% YoY. Walmart online sales grew 21% in
its first quarter. The, and partnerships with logistics companies have improved delivery service. To make its Background: Walmart was founded by Sam Walton
online presence acquisition of Jet.com helped boost its e-commerce presence strong and compete with in1962 in Rogers, Arkansas. The company began as
Team other online retailers like Amazon, it has acquired other technology companies like Zeekit, Volt Systems,
Moosejaw, Vizio etc.
a single discount store and gas grown to become
the world’s largest retailer with $648B in revenue
out of which USA alone contributes $442B It is
Transition to omnichannel marketplace
WCB With digital transformation Walmart has transformed itself to become a more complete Omnichannel
headquartered in The USA and operates
internationally.
Marketplace to combat competitors such as Amazon. The retail giant has embraced the digital era, utilizing
Walmart’s primary revenue source is its vast
online platforms and e-commerce to reach a broader audience. Part of this digital evolution involves the
ESG strategic placement of distribution and fulfillment centers, ensuring efficient order processing and timely
network of retail stores that sell a wide range of
products including groceries, electronics, apparel
deliveries. Walmart has integrated its physical stores with its online platform to create a cohesive inventory
and household goods.
management system. Walmart Marketplace is a platform where third-party sellers can list their products on
Value Walmart's website which expands the range of products available to customers while leveraging Walmart's Additionally e-commerce has been significant
vast distribution network for fulfillment. revenue stream so it has acquired technology like
Zeekit, Volt Systems, Moosejaw, Vizio etc. to
Risks compete with other online retailers like Amazon.

Sources: Market watch, wikipedia 11 August 2024 2

Consumer Staples Giants Prioritize Long-term Value Creation over
Short-term Profits
Consumer staples industries steady growth drivers amid market volatility Costco & Walmart leading the industry
Story The Consumer staples industry is experiencing growth which has been improving the overall development of the
Mrkt Cap in $bn
industry. Health and wellness awareness drives demand for organic, natural, and nutritious products, while
400 376.97 COSTCO
sustainability has become a central focus, with consumers favoring eco-friendly brands. The industry is
Sales transforming digitally, rapidly shifting towards e-commerce and digital shopping platforms. Inflation has largely 350
300.09 WALMART
been affecting the industry evidenced by the increasing cost of production & transportation leading to higher 300
prices for essential goods. Leading companies like Costco and Walmart dominate the market with a market Cap TARGET
250
FVMR of $376.97bn and $300.09bn respectively. Also, the United States has the largest retail market largely driven by
its large customer base, high per-capital income, and advanced retail infrastructural development. 200
COUCHE

SYSCO
150
Food retailers face margin squeezes as inflation outpaces price hikes
P5F The Food & Staples Retailing industry is facing significant challenges in 2024. Players like Walmart and Kroger are
100 68.35
43.17 35.54
KROGER
34.23
grappling with inflationary pressures outpacing price increases, as seen in Kroger's 3% price hikes against 4% cost 50

inflation in Q3 2023. Customer bargaining power remains high due to price sensitivity and abundant alternatives, 0
Team though large retailers' scale helps them in controlling supplier influence. Companies with strong loyalty programs
like Costco's 92.6% membership renewal rate are better positioned to maintain pricing power. Growing private USA has the largest retail market
labels is crucial for margins, while e-commerce expansion, like Walmart's 24% increase in U.S. online sales in
WCB 2023, is reshaping the industry outlook. Future success now hinges on efficiency, data-driven pricing, and 4.33%
4.19% 2.85% 4.04%

omnichannel strategies. Companies effectively balancing price increases with value perception are likely to 7.51%
outperform in the coming years.
ESG Disruptions in consumer staples value chain creates more challenges ahead
The immediate outlook remains challenging. Many consumer staples companies have passed on price increases
Value in certain categories, resulting in an average price hike of 5-8% across essential goods. They've avoided the worst
of the global supply chain issues, with logistics costs decreasing by 15% YOY. However, three interrelated
77.08%
disruptive forces remain in the industry: value chain disruption with a 12% increase in lead times for raw
Risks materials, a 25% surge in e-commerce penetration causing shifts in distribution networks, and changing
consumer demographics and preferences.
United States
Austrilia
Canada
United Kingdom
Japan
Other

Source: Yahoo Finance, MSCI Research, S&P Global, Insider Monkey, Investment Monitor, Food Export Midwest USA, Fidelity Investment 11 August 2024 3
WMT: FY1Q25 saw a increase in EBIT margin

In 1Q25, Walmart experienced a revenue increase

Story by 6.0% YoY.
The company saw a 8% YoY increase in gross
(US$ m) FY1Q24 FY2Q24 FY3Q24 FY4Q24 FY1Q25 %QoQ %YoY profit and 10% YoY increase in EBIT.
Sales Revenue 152,301 161,632 160,804 173,388 161,508 (6.9) 6.0 WMT reported 1Q25 recurring EPS of US$0.69,
Cost of sales (115,284) (121,850) (121,183) (131,825) (121,431) (7.9) 5.3 which was +42% YoY and +7% QoQ.
Gross profit 37,017 39,782 39,621 41,563 40,077 (3.6) 8.3
FVMR SG&A
Other (exp)/inc
(30,777)
-
(32,466)
-
(33,419)
-
(34,309)
-
(33,236)
-
(3.1)
na
8.0
na
EBIT 6,240 7,316 6,202 7,254 6,841 (5.7) 9.6
Finance cost (664) (642) (682) (695) (714) 2.7 7.5
P5F Other inc/(exp) 312 853 (405) 559 1,508 169.8 383.3
Earnings before taxes 5,888 7,527 5,115 7,118 7,635 7.3 29.7
Income tax (792) (2,674) (272) (1,840) (1,728) (6.1) 118.2

Team Earnings after taxes

Equity income
5,096
-
4,853
-
4,843
-
5,278
-
5,907
-
11.9
na
15.9
na
Minority interest (223) (162) (190) (184) (203) 10.3 (9.0)
Earnings from cont. operations 4,873 4,691 4,653 5,094 5,704 12.0 17.1
WCB Forex gain/(loss) & unusual items
Net profit
(3,200)
1,673
3,200
7,891
(4,200)
453
400
5,494
(600)
5,104
nm
(7.1)
nm
205.1
EBITDA 11,930 13,126 12,174 13,488 13,097 (2.9) 9.8

ESG Recurring EPS (US$)

Reported EPS (US$)
0.48
0.21
0.68
0.98
0.42
0.06
0.64
0.08
0.69
0.63
7.3
738.6
41.9
206.2
Profits (%) FY1Q24 FY2Q24 FY3Q24 FY4Q24 FY1Q25 chg QoQ chg YoY
Gross margin 24.3 24.6 24.6 24.0 24.8 0.8 0.5
Value Operating margin 4.1 4.5 3.9 4.2 4.2 0.1 0.1
Net margin 1.1 4.9 0.3 3.2 3.2 (0.0) 2.1

Risks
Sources: A. Stotz Investment Research, Refinitiv. 11 August 2024 4
WMT: Consensus estimates

Out of 40 analysts, 36 have suggested buy

Story recommendation and only 4 holds neutral view.
None of them suggests selling recommendation
which signifies good future potential of the
Sales Analyst recommendations Apr-24 May-24 Jun-24 Current
company.

# of recommendations 40 41 40 41 The mean target price indicates 2.8% upside

potential.
1. Strong Buy 12 12 11 11
FVMR 2. Buy 24 25 26 27 Consensus also predicts revenue growth of
3. Hold 4 4 3 3 around 4% for next three years.

P5F 4. Sell
5. Strong Sell
-
-
-
-
-
-
-
-
Analysts predicts slight decrease in gross profit
margin whereas, net profit margin is expected to
Consensus recommendation 1.8 1.8 1.8 1.8 increase slightly.

Team
Price target rel. to current price (US$) Current price Target price up/(dn) %
Mean 71.03 73 2.8
WCB
Consensus forecast (%) 24 25E 26E 27E
Revenue growth 6.0 4.4 4.0 3.6
ESG Gross margin 24.4 24.1 24.2 23.9
EBIT margin 4 4 5 5

Value Net margin 2.8 2.9 3.0 3.2

Risks
Sources: A. Stotz Investment Research, Refinitiv. 11 August 2024 5
WMT: Revenue structure

In the final year ended January 31, 2024, Walmart’s revenue amounted to approximately (US$B) (%)
Story 648 billion US dollars worldwide. Compared to a year earlier, the retailer’s revenue
increased by 6%. The company operates discount stores, supercenters and neighborhood 800,000 3.5
markets globally. 700,000 3.0
Sales Walmart deals in a wide variety of products such as groceries, apparel, furniture, home
appliances and electronics. The company operates through three distinct business
600,000
500,000
2.5
segments: Walmart US-69%, Walmart International-18% and Sam’s Club-13%. Walmart’s 2.0
strongest segment in terms of revenue is Walmart US, which operates retail stores in the
400,000
FVMR company’s domestic market of the United States. This segment includes Walmart’s US , 300,000
1.5
ecommerce website: Walmart.com 200,000 1.0
The ecommerce revenue has increased significantly in recent years from US$25B in 2017 100,000 0.5
P5F to US$100B in 2024. Ecommerce sales accounts 16% of total sales whereas store based - -
sales accounts 84%. The company’s Walmart International and Sam’s Club business
22A 23A 24A 25E 26E 27E
divisions operates globally generating revenue through retail, wholesale, membership
Team club and online product sales. Revenue Net margin (RHS)
Revenue breakdown, by segment 2024
WCB
Ecommerce 16% Store based sales 84% Sales based on channels
ESG
Value
Risks
Sources: A. Stotz Investment Research, company data, Refinitiv 11 August 2024 6
WMT: A. Stotz Four Elements

Overall: WMT appears attractive

Worst Neutral Best
Story relative to 1830 non-financial
companies in USA considering
Rank relative to peers*
Fundamentals, Valuation,
Sales Momentum, and Risk.

Fundamentals W B Valuation W B Fundamentals: Ranked in the top

10% in USA due to strong
FVMR profitability driven by a high asset
turnover.
Valuation: Not attractive as it
P5F trades on high PB and PE ratio
relative to other companies in US
market.
Team Momentum: Attractive as both
price and fundamental momentum
have delivered convincing results.
WCB Risk: The balance sheet risk is low,
Momentum W B Risk W B
as current ratio is below one and
Price risk measured in terms of
ESG beta to the US market is low as
well.

Value
Risks Note: Benchmarking against 1830 non-financial companies in USA.

Sources: A. Stotz Investment Research, Refinitiv. Notes: *Bars are decile rankings of the most recent period. **Past 12 months of published data. na = not available, nm = not meaningful.
Valuation is based on historical prices. 11
11 August
August 2024
2024 7
7
WMT: A. Stotz Profitable Growth

Profitable Growth ranked 30%

Story among 560 large Consumer Staples
companies globally in 2021 and
became volatile in between.
Sales However, in 2024, the rank came
back to #3 and projected to stay
there in the for coming 12 months.
FVMR Profitability has ranked in the top
30% for the most period. Most
recently, Growth increased from #5
P5F to #4 and continuing to improve in
coming years.
Asset efficiency has ranked #1
Team since 2023. It has improved from
#2 position. However due to poor
Expense control, the overall
WCB profitability has decreased. It has
shown World Class performance
consistently and comprised the
ESG main driver of the overall
Profitable Growth rank.
Sales growth has ranked above
Value average recently. It has improved
from #7 to #4. Expense direction
has been volatile; but has
Risks improved from #8 in 2022 to # 4 in
2024.

Source: A. Stotz Investment Research. Notes: 1 = top ranking and 10 = worst. Most recent year’s data is based on the past 12 months (PTM) of published data. 11
11 August
August 2024
2024 8
8
WMT: Profit and loss statement

Story Actual Forecast

(YE Jan, US$ m) 2022A 2023A 2024A 2025E 2026E 2027E 2028E 2029E
Sales Revenue 572,754 611,289 648,125 687,013 721,363 757,431 787,729 819,238
Cost of goods & services (429,000) (463,721) (490,142) (520,068) (546,072) (573,375) (596,310) (620,163)
Gross profit 143,754 147,568 157,983 166,944 175,291 184,056 191,418 199,075
FVMR SG&A (115,312) (123,040) (126,871) (137,403) (144,273) (151,486) (157,546) (163,848)
Other operating (exp)/inc - - - - - - - -
EBIT 28,442 24,528 31,112 29,542 31,019 32,570 33,872 35,227
P5F Interest expense (net) (1,836) (1,874) (2,137) (2,092) (1,810) (1,598) (1,421) (1,246)
Other non-operating inc/(exp) 200 162 (427) 1,708 256 256 256 256
Earnings before taxes (EBT) 26,806 22,816 28,548 29,158 29,464 31,227 32,708 34,237
Team Income tax (4,756) (5,724) (5,578) (6,064) (6,146) (6,132) (6,502) (6,884)
Earnings after taxes (EAT) 22,050 17,092 22,970 23,094 23,318 25,095 26,206 27,353
Equity income/Minority interest (267) 388 (759) (656) (665) (736) (780) (826)
WCB Earnings from cont. operations 21,783 17,480 22,211 22,439 22,653 24,360 25,426 26,527
Forex/Exceptionals before tax (8,110) (5,800) (6,700) (6,700) (6,700) (6,700) (6,700) (6,700)
Net profit 13,673 11,680 15,511 15,739 15,953 17,660 18,726 19,827
ESG Earnings per share adj.
Net profit 13,673 11,680 15,511 15,739 15,953 17,660 18,726 19,827
Less: Pref. share dividend & other adj. - - - - - - - -
Value Proft attributable to common shares 13,673 11,680 15,511 15,739 15,953 17,660 18,726 19,827
Add: Exceptional items after tax 6,047 3,849 4,989 4,891 4,891 5,025 5,025 5,025
Add: Forex loss/(gain) after tax - - - - - - - -
Risks Recurring profit after tax 19,720 15,529 20,500 20,630 20,844 22,685 23,751 24,852
Recurring FDEPS (US$) 2.3 1.9 2.5 2.5 2.6 2.8 2.9 3.1

Sources: A. Stotz Investment Research, company data, Refinitiv. 11 August 2024 9

WMT: Balance sheet - Assets

Story Actual Forecast

Balance sheet - Assets

Sales (YE Jan, US$ m) 2022A 2023A 2024A 2025E 2026E 2027E 2028E 2029E
Cash & short-term investments 14,760 8,625 9,867 18,003 27,434 38,205 48,974 60,042
Accounts receivable 8,280 7,933 8,796 9,542 10,019 10,520 10,941 11,378
FVMR Inventories 56,511 56,576 54,892 57,785 60,675 63,708 66,257 68,907
Other current assets 1,519 2,521 3,322 4,809 5,050 5,302 5,514 5,735

P5F Total current assets

Long-term investments
81,070
-
75,655
-
76,877
-
90,139
-
103,177
-
117,735
-
131,685
-
146,061
-
Net fixed assets 112,624 119,234 130,338 136,025 139,005 141,864 145,307 149,284
Team Intangible assets - - - - - - - -
Goodwill 29,014 28,174 28,113 27,551 27,000 26,460 25,931 25,412
Other long-term assets 22,152 20,134 17,071 16,217 17,028 17,880 18,774 19,712
WCB Total assets 244,860 243,197 252,399 269,932 286,209 303,939 321,696 340,469

ESG
Value
Risks
Sources: A. Stotz Investment Research, company data, Refinitiv. 11 August 2024 10
WMT: Balance sheet - Liabilities and equity

Story Actual Forecast

(YE Jan, US$ m) 2022A 2023A 2024A 2025E 2026E 2027E 2028E 2029E
Sales Overdrafts & short-term loans 3,724 5,130 5,050 4,785 4,977 5,176 5,383 5,598
Accounts payable 81,300 84,868 85,571 91,012 95,563 100,341 104,354 108,529
Other current liabilities 2,355 2,200 1,794 3,435 3,607 3,787 3,939 4,096
FVMR Total current liabilities 87,379 92,198 92,415 99,232 104,146 109,304 113,676 118,223
Long-term debt 39,107 39,492 41,841 43,068 44,791 46,583 48,446 50,384
Other long-term liabilities 26,483 27,753 27,794 28,072 28,353 28,636 28,923 29,212
P5F Total liabilities 152,969 159,443 162,050 170,373 177,290 184,522 191,044 197,818
Minority interest 8,638 7,061 6,488 7,144 7,808 8,544 9,325 10,151
Paid-up capital - Common shares 5,115 5,238 5,349 5,349 5,349 5,349 5,349 5,349
Team Paid-up capital - Preferred shares - - - - - - - -
Retained earnings 86,904 83,135 89,814 98,369 107,064 116,825 127,280 138,453

WCB Revaluation/Forex/Others
Total equity
(8,766)
83,253
(11,680)
76,693
(11,302)
83,861
(11,302)
92,416
(11,302)
101,111
(11,302)
110,872
(11,302)
121,327
(11,302)
132,500
Total liab & shareholders' equity 244,860 243,197 252,399 269,932 286,209 303,939 321,696 340,469
ESG Book value per share adj.
Total Equity 83,253 76,693 83,861 92,416 101,111 110,872 121,327 132,500
Less: Pref. shareholders' equity - - - - - - - -
Value Less: Hybrid debt & others (52) (48) (52) - - - - -
Common shareholders' equity 83,201 76,645 83,809 92,416 101,111 110,872 121,327 132,500
BVPS (US$) 10.1 9.5 10 11 13 13.8 15.1 16.5
Risks
Sources: A. Stotz Investment Research, company data, Refinitiv. 11 August 2024 11
WMT: Balance sheet - Cash flow statement

Story Actual Forecast

(YE Jan, US$ m) 2022A 2023A 2024A 2025E 2026E 2027E 2028E 2029E
Sales Net income 13,673 11,680 15,511 15,739 15,953 17,660 18,726 19,827
Depreciation & amortization 21,316 21,890 23,706 25,739 26,894 27,969 29,088 30,252
Calculated chg in net working capital 856 2,693 317 1,956 1,116 1,171 984 1,023
FVMR Other non-cash & balancing items (9,816) (7,422) (3,808) (16,230) (17,559) (18,798) 1,309 1,345
Operating cash flow 26,029 28,841 35,726 27,203 26,404 28,003 50,107 52,446
Capital expenditures (12,712) (16,687) (20,356) (13,978) (11,099) (10,755) (11,194) (11,651)
P5F (Inc)/dec in other investments 6,697 (1,035) (931) 854 (811) (851) (894) (939)
Investing cash flow (6,015) (17,722) (21,287) (13,124) (11,910) (11,607) (12,088) (12,590)
Increase/(dec) in debt (5,872) 2,318 1,262 963 1,914 1,991 2,070 2,153
Team Dividend paid (6,152) (6,114) (6,140) (7,183) (7,258) (7,899) (8,270) (8,654)
Change in equity (9,787) (9,920) (2,779) - - - - -
Others (1,017) (3,323) (5,757) 278 281 284 286 289
WCB Financing cash flow (22,828) (17,039) (13,414) (5,943) (5,063) (5,625) (5,914) (6,211)
Net inc/(dec) in cash & cash equi (2,814) (5,920) 1,025 8,136 9,431 10,771 32,105 33,645
Beginning cash 17,741 14,760 8,625 9,867 18,003 27,434 38,205 48,974
ESG Adjustment for historic data (167) (215) 217 - (0) - (21,337) (22,577)
Ending cash 14,760 8,625 9,867 18,003 27,434 38,205 48,974 60,042

Value
Risks
Sources: A. Stotz Investment Research, company data, Refinitiv. 11 August 2024 12
WMT: Ratios

Story Actual Forecast Recent quarters

Sales (YE Jan)

Internal liquidity (x)
2022A 2023A 2024A 2025E 2026E 2027E Oct '23 Jan '24 Apr '24

Current ratio 0.9 0.8 0.8 0.9 1.0 1.1 0.8 0.8 0.8

FVMR Quick, or acid test ratio

Working cap. mgmt (Days)
0.3 0.2 0.2 0.3 0.4 0.5 0.2 0.2 0.2

Inventory conversion period 43 44 41 39 39 39 45 41 41

Receivables collection period 5 5 5 5 5 5 5 5 5
P5F Days from raw mat to coll 47 49 46 44 44 44 49 45 46
Payables deferral period 65 65 63 61 62 62 64 59 61
Cash conversion cycle (18) (16) (17) (17) (18) (18) (15) (14) (16)
Team Profitability ratios (%)
Gross profit margin 25.1 24.1 24.4 24.3 24.3 24.3 24.6 24.0 24.8
EBIT margin 5.0 4.0 4.8 4.3 4.3 4.3 3.9 4.2 4.2
WCB EBIT return on avg assets 11.4 10.1 12.6 11.3 11.2 11.0 9.6 11.3 10.8
Return on average assets 5.5 4.8 6.3 6.0 5.7 6.0 0.7 8.6 8.1
Financial risk (x)
ESG Liabilities-to-assets (%) 62.5 65.6 64.2 63.1 61.9 60.7 67.0 64.2 65.3
Debt-to-equity 0.5 0.6 0.6 0.5 0.5 0.5 0.7 0.6 0.6
Net debt-to-equity 0.3 0.5 0.4 0.3 0.2 0.1 0.5 0.4 0.5
Value Times-interest-earned 25 22 20 22 24 27 18 19 18
Effective interest rate (%) 4.3 4.9 5.9 5.2 5.0 4.5 5.2 5.4 5.9

Risks
Sources: A. Stotz Investment Research, company data, Refinitiv. 11 August 2024 13
WMT: Ratios (continued)

Story Actual Forecast Recent quarters

Sales (YE Jan)

General growth (YoY, %)
2022A 2023A 2024A 2025E 2026E 2027E Oct '23 Jan '24 Apr '24

Revenue 2.4 6.7 6.0 6.0 5.0 5.0 5.2 5.7 6.0
FVMR Assets
Gross profit
(3.0)
3.5
(0.7)
2.7
3.8
7.1
6.9
5.7
6.0
5.0
6.2
5.0
4.7
6.5
3.8
7.6
3.7
8.3
Operating profit 5.5 (13.8) 26.8 (5.0) 5.0 5.0 3.5 30.4 9.6
P5F Attributable profit
EPS
1.2
2.5
(14.6)
(12.6)
32.8
34.7
1.5
1.6
1.4
1.4
10.7
10.7
125.2
125.4
(12.4)
(12.2)
205.1
206.1
Recurring EPS 23.2 (19.2) 33.5 0.8 1.0 8.8 (50.5) 22.3 41.9
Team Du Pont analysis (%)
Net profit margin 2.4 1.9 2.4 2.3 2.2 2.3 0.3 3.2 3.2
Revenue per US$100 of assets 230.3 250.5 261.6 263.1 259.4 256.7 250.1 271.1 255.1

WCB Assets/equity (x)

Return on equity
3.0
16.7
3.1
14.6
3.1
19.3
3.0
17.9
2.9
16.5
2.8
16.7
3.2
2.3
3.1
26.9
3.1
24.7
Others (%)

ESG Effective tax rate

Dividend payout ratio
25.4
31.2
33.6
39.7
25.5
30.0
27.0
34.9
27.0
34.9
25.0
35.0
29.7
45.2
24.5
29.7
24.6
30.4

Value
Risks
Sources: A. Stotz Investment Research, company data, Refinitiv. 11 August 2024 14
WMT: Free cash flow data

Story Actual Forecast Fade period*

(YE Jan, US$ m) 2022A 2023A 2024A 2025E 2026E 2027E 2028E 2029E 2030E 2031E
Sales EBIT
Est tax rate (%)
28,442
25
24,528
34
31,112
26
29,542
27
31,019
27
32,570
25
33,872
25
35,227
25
35,046
25
34,828
25
NOPAT 21,207 16,277 23,169 21,565 22,644 24,427 25,404 26,420 26,284 26,121
FVMR Add: Depre & amort
Cash NOPAT
21,316
42,523
21,890
38,167
23,706
46,875
25,739
47,304
26,894
49,537
27,969
52,397
29,088
54,492
30,252
56,672
30,932
57,216
31,619
57,740
Chg in A/R (1,764) 347 (863) (746) (477) (501) (421) (438)
P5F Chg in inventory
Chg in oth curr asst
(11,562)
19,342
(65)
(1,002)
1,684
(801)
(2,893)
(1,487)
(2,889)
(240)
(3,034)
(252)
(2,548)
(212)
(2,650)
(221)
Chg in A/P 6,927 3,568 703 5,441 4,551 4,778 4,014 4,174
Team Chg in oth curr liabs
Less: Chg in work cap
(12,087)
856
(155)
2,693
(406)
317
1,641
1,956
172
1,116
180
1,171
151
984
158
1,023
Less: CAPEX (12,712) (16,687) (20,356) (13,978) (11,099) (10,755) (11,194) (11,651)
WCB Less: Chg in invest cap
FCF to firm 30,667 24,173 26,836 35,282 39,554 42,813 44,282 46,044
(10,867)
46,349
(11,108)
46,631
FCF to equity 23,308 25,079 26,100 34,429 39,687 43,090 44,571 46,344 45,718 45,971
ESG FCF per share (US$)
NOPAT growth (%)
3.6
18.1
2.9
(23.2)
3.3
42.3
4.4
(6.9)
4.9
5.0
5.3
7.9
5.5
4.0
5.7
4.0
5.7
(0.5)
5.8
(0.6)
FCF growth (%) 10.7 (21.2) 11.0 31.5 12.1 8.2 3.4 4.0 0.7 0.6

Value
Risks
Sources: A. Stotz Investment Research, company data, Refinitiv.
11 August 2024 15
Note: *Shows the two first years of the fade period.
WMT: Relative valuation

On the forward 2025E PB multiple, Walmart looks

Story 0.4
(x), lower is cheaper PB-to-ROE (2025E) expensive compared to others. The disparity
between Walmart, Asia, and the global market
0.35
further highlights the same with a bigger gap. I
Sales 0.3
forecast its return on equity (ROE) to be around
18% in 2025E, higher than the sector average in
0.21 0.22 Asia and but still lower than the US and global
0.19
FVMR 0.2 average. This results in Walmart trading at a
premium based on the 2025E PB-to-ROE multiple.

0.1
P5F
-
Team World USA Asia ex Japan WMT

PB ratio (x) 2023A 2024A 2025E 2026E

WCB WMT 5.2 5.8 6.2 5.7
USA 6.3 6.1 6.0 5.4
ESG Asia ex Japan
World
3.3
4.2
3.1
4.2
3.0
4.2
2.8
3.8
ROE (%)
Value WMT 14.6 19.3 17.9 16.5
USA 29.3 27.9 28.4 27.8
Risks Asia ex Japan 13.7 11.9 13.7 14.5
World 19.8 20.4 21.5 21.6

Sources: A. Stotz Investment Research, Refinitiv 11 August 2024 16

 WMT: Relative valuation

On the forward 2025E PE multiple, Walmart

Story (x), lower is cheaper PE-to-growth (2025E) trades at a premium to the consumer staples
sector in the US., Asia ex Japan, and the world.
40.0
35.41 Thus, Walmart looks expensive on a PE basis.
35.0
Sales 30.0
We expect its EPS growth to be 1% in 2024E.

25.0
FVMR 20.0

15.0

P5F 10.0

5.0 3.43
5.22
0.97
-
Team Asia ex
Japan
World USA WMT

PE ratio (x) 2023A 2024A 2025E 2026E

WCB WMT 25.9 23.8 27.9 27.6
USA 21.6 21.9 21.0 19.6
ESG Asia ex Japan
World
23.9
21.2
26.8
20.7
21.8
19.6
19.0
18.0
EPS growth (%)
Value WMT (19.2) 33.5 0.8 1.0
USA 5.5 3.0 4.0 7.4
Risks Asia ex Japan
World
(2.9)
8.5
(19.4)
(1.0)
22.6
5.7
14.7
8.8

Sources: A. Stotz Investment Research, Refinitiv 11 August 2024 17

WMT: Valuation and target price

We assume a risk-free rate of 2% and a market

Story Calculation of cost of equity (COE, %) Estimate equity risk premium for the US. market of 11%.
Market: United States of America Walmart has been a low-beta stock, so we
US$ Equity value per share (US$)
Market risk-free rate 2.0 assume a beta of 0.5x, which is slightly higher
100 Current stock price (US$)
Sales Market equity risk premium
Market return
11.0
13.0 90 87 89 than its previous averages. We forecast a capital
Company beta (x) 0.5 80
structure with around 10% debt to total capital.
COE 7.5 71 This results in a WACC and a discount rate of
70
FVMR Calculation of WACC Average 60
7.1%. We use a low terminal growth of 2% and
Free Cash Flow to Firm (FCFF) to value Tesla.
Cost of debt 4.6
50
Average tax rate 25.3 In our base case scenario, I anticipate 5% growth
P5F After tax cost of debt
Cost of preferred stock
3.4
-
40
30 25
of sales leading to a value of US$87 per share
based on the FCFF methodology. This represents a
Debt as a % of total capital 9.6 20
-
22.5% upside compared to the current market
Team Preferred stock as a % of total capital
Equity market value as a % of total capital 90.4
10
-
price.
Weighted average cost of capital 7.1 DDM FCFF FCFE In our sensitivity analysis (on the following page),
WMT: Valuation (US$ m) DDM % FCFF % FCFE % the optimistic case assumes a sales growth of
WCB PV of cash flow in years 2025-29 31,704 16 168,390 24 166,711 23 5.3% until 2028E, resulting in a target price of
PV of fade period 60,746 31 234,541 33 222,118 31 US$87.3. Conversely, in the pessimistic case, sales
PV of terminal value 106,543 54 344,405 49 318,795 44 growth is assumed to be 4.3%, yielding a value of
ESG Present value of future cash flows
Add: Cash & ST investments
198,992
na*
100
-
747,336
9,867
106
1
707,625
9,867
99
1
US$86.7 per share.
Add: Long-term investments na - - - - -
Corporate value 198,992 100 757,203 108 717,492 100
Value Less: Total debt, preferred stock & minorities na - (53,379) (8) na -
Shareholder value 198,992 100 703,824 100 717,492 100
Number of shares (m) 8,090 8,090 8,090
Risks Equity value per share (US$) 25 87 89

Sources: A. Stotz Investment Research, company data, Refinitiv. 11 August 2024 18

WMT: Sensitivity analysis

Story Fundamentals (%, five year-average) Valuation (US$)

WMT EPS growth Net margin ROE DDM FCFF FCFE PEG PB/ROE
Sales What if sales growth changed by X% from base case?
+10 (5.3%) nm 2.3 16.8 25.5 87.3 89.0 18.2 43.5
Base case of 4.8% nm 2.3 16.6 24.6 87.0 88.7 10.5 43.2
FVMR -10 (4.3%) nm 2.3 16.3 23.7 86.7 88.4 2.8 42.8
What if gross margin changed by X percentage points from base case?
+2 (26.3%) nm 3.8 23.6 36.9 96.8 98.3 933.4 71.7
P5F Base case of 24.3%
-2 (22.3%)
nm
nm
2.3
0.9
16.6
7.3
24.6
12.3
87.0
77.2
88.7
79.1
10.5
na
43.2
16.2
What if discount rate changed, by changing the risk factor (beta) from base case?
Team +10 (Beta 0.55x, COE 8.1%)
Base case of 0.50x (COE 7.5%)
22.1
24.6
80.7
87.0
82.5
88.7
-10 (Beta 0.45x, COE 7.0%) 27.7 94.4 96.0
WCB What if terminal growth rate changed by X percentage points from base case?
+1 28.7 101.1 102.7
Base case of 2% 24.6 87.0 88.7

ESG -1
Note: PEG and PB/ROE are based on 2025E relative to the Cons Staples sector in USA.
21.7 77.5 79.3

Value
Risks
Sources: A. Stotz Investment Research, company data, Refinitiv. 11 August 2024 19
WALMART: Main risk is execution of omni-channel strategy

Failure to successfully execute omnichannel strategy

Story Failure to successfully execute omnichannel strategy which includes investment in ecommerce, technology
including artificial intelligence and supply-chain automation, acquisitions, joint ventures, store remodels
etc. will adversely affect the market position, net sales and financial performances.
Sales
Identifying and responding to consumer trends and preferences
If company do not timely identify and respond trends or preferences of consumers it would negatively
FVMR affect the relationship with customers, demand of products and services, market share and growth of the
business.

P5F Strong competition from others

Strong competition from other retailors, wholesale club operators, omni-channel retailors and other
business could materially affect their financial performances. The omni-channel retail landscape is
Team becoming highly competitive and rapidly evolving, and entry of new, well-funded competitors may increase
competitive pressures.

WCB
ESG
Value
Risks
Source: Stotz Academy, company report 11 August 2024 20