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2021-05-31

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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":110509913,"tweetId":"110509913","gmtCreate":1622465945932,"gmtModify":1634101295540,"author":{"id":3581043736108095,"idStr":"3581043736108095","authorId":3581043736108095,"authorIdStr":"3581043736108095","name":"Xylta","avatar":"https://static.tigerbbs.com/37b6717156404221cc7bec84a2a31de6","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":9,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body>Really?</body></html>","htmlText":"<html><head></head><body>Really?</body></html>","text":"Really?","highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":4,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/110509913","repostId":1168423433,"repostType":4,"repost":{"id":"1168423433","kind":"news","pubTimestamp":1622464368,"share":"https://www.laohu8.com/m/news/1168423433?lang=&edition=full","pubTime":"2021-05-31 20:32","market":"us","language":"en","title":"Walmart's Path To $180/Share","url":"https://stock-news.laohu8.com/highlight/detail?id=1168423433","media":"seekingalpha","summary":"Summary\n\nDeutsche Bank and Citigroup recently raised their price targets for Walmart to ~$180/share.","content":"Summary\n<ul>\n <li>Deutsche Bank and Citigroup recently raised their price targets for Walmart to ~$180/share.</li>\n <li>With shares trading around $142/share, this target price implies more than 25% upside. Are the analysts right?</li>\n <li>I present two possible “paths” to the high-side target: (1) a P/S path and (2) a DCF path backed by the company’s strategy.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/d19c68a527c5aef8f6b78e19020e4836\" tg-width=\"768\" tg-height=\"512\">Photo by Scott Olson/Getty Images News via Getty ImagesJust Getting Started\nDuring Walmart’s (WMT) recent&nbsp;Q1 FY ’22 Investment Community Meeting, CEO Doug McMillon, recounting his early years with WMT when it was already a large organization, intimated that the company is “just getting started”. Analysts, particularly the likes of Deutsche Bank (DB) and Citigroup (C), may certainly hope so given that their high-side price targets for WMT are circling around a bullish $180/share.\nFigure 1: A Few High-Side Analyst Price Targets for Walmart\n<img src=\"https://static.tigerbbs.com/470c2215ecb0d8245e0ffd9b666b7973\" tg-width=\"624\" tg-height=\"174\" referrerpolicy=\"no-referrer\">\nData Source: MarketBeat.com\nTable Source: Yves Sukhu\nNotes:\n<ul>\n <li>Data as of 5/25/21.</li>\n</ul>\nKeep in mind that shares are trading around $142/share at the moment – meaning the high-side estimates&nbsp;imply more than 25% upside; upside that might seem a bit uncertain against&nbsp;FY ’22 guidance:\n<ul>\n <li>Consolidated net sales decline:despite consolidated net sales of $138.3B in Q1 FY ’22, representing 2.7% year-over-year growth, net revenue in FY ’22 is expected to decline in the low single-digits in constant currency, although the decline is largely attributed to divestiture activity, including the divestitures of WMT’s UK, Japan, and Argentina businesses. Excluding divestitures, consolidated net sales are expected to grow in the low-to-mid single-digits.</li>\n</ul>\n<ul>\n <li>Consolidated operating income decline:operating income is expected to decline in the low-to-mid single-digits, again largely due to divestiture activity. Excluding divestitures, operating income is anticipated to increase slightly.</li>\n</ul>\n<ul>\n <li>Pandemic headwinds remain as tailwinds subside:WMT benefited from US stimulus spending during the first quarter. However, as further stimulus looks increasingly unlikely, management noted during their Q1 FY ’22 earnings call that“...certain international markets continue to be negatively affected by the resurgence in COVID cases and related government restrictions and operations, particularly in India and Canada.”</li>\n</ul>\nBeyond management guidance, how, exactly, would the $560B retailer grow into the target when it is arguable that the stock is already expensive,when considering a forward PE north of 26&nbsp;contrasted against a historical P/E average of ~20 over the last 10 fiscal periods?\nFigure 2: Walmart Historical P/E Over Last 10 Fiscal Periods\n<img src=\"https://static.tigerbbs.com/35412074f44bddd3ca34325c2ae5c854\" tg-width=\"481\" tg-height=\"292\" referrerpolicy=\"no-referrer\">\nData Source:MacroTrends.net\nChart Source: Yves Sukhu\nOf course, if one were to discount the P/E expansion in recent years, we would arrive at a historical P/E average under 15 making the stock even more expensive than it arguably already is.\nPutting historical P/E comparisons aside for the moment, as I am long WMT, I would like to believe that the high-side analysts are right. Under that assumption, I explore Walmart’s path to $180/share. To be clear, I’m not saying the high-side analysts are correct; only that I am attempting to understand how Walmart could conceivably “get there”.\nA Path by Price-to-Sales\nEven without reading Deutsche Bank’s and Citigroup’s notes to its clients on WMT, one would reasonably assume that both firms are confident in the company’s ability to execute against its general strategy, and to propel itself forward to their suggested price targets. But Walmart’s strategy aside – a topic to be discussed in more detail later – perhaps there is reason to think WMT’s current share price is undervalued on a P/S basis.\nFigure 3: Walmart and Selected Competitor Statistics\n<img src=\"https://static.tigerbbs.com/1e1b82f716992c4fbecff877f40de8ab\" tg-width=\"624\" tg-height=\"346\" referrerpolicy=\"no-referrer\">\nData Source: Yahoo Finance\nTable Source: Yves Sukhu\nNotes:\n<ul>\n <li>Data as of market close 5/26/2021.</li>\n</ul>\nAs seen in Figure 3, WMT’s P/S lags its selected peers. For argument’s sake, if one were to assume a P/S ratio of 0.95, equal to that of Costco (COST), would be reasonable (relative to the chosen peer group), simple math pushes the share price well above $180/share.\nFigure 4: WMT Share Price Using P/S = 0.95\n<img src=\"https://static.tigerbbs.com/f6cbdf6946bce186b217907848426c02\" tg-width=\"611\" tg-height=\"198\" referrerpolicy=\"no-referrer\">\nSource: Yves Sukhu\nIn this simple analysis here, I am not saying WMT necessarily&nbsp;deserves&nbsp;a P/S ratio of 0.95. But it is interesting to note from Figure 3 that WMT and COST are both in the same “ballpark” in terms of operating and profit margin. On that isolated basis, perhaps there is, at least, some argument to be made for a higher P/S multiple in the near term. Yet, this line of thinking is naturally based on “where the market is right now”.WMT’s average historical P/Sis much lower, and the same is also true for COST. Accordingly, a P/S-centric argument for $180/share sits upon the rather capricious whims of current investor sentiment.\nA Path by Strategy\nWe arguably find stronger footing for WMT’s high-side targets in consideration of the company’s go-forward plan. Management, in fact, believes its strategy will eventually support 4%+ top-line year-over-year growth. On that metric alone, a DCF model can be built to estimate the firm’s value if the plan “holds”. However, before jumping into the DCF analysis, it is worthwhile reviewing the key elements of Walmart’s plan to understandhowmanagement plans to achieve its top-line growth target. I have generalized the strategy in the following figure, largely based on management comments during the&nbsp;Q1 FY ’22 Investment Community Meeting.\nFigure 5: WMT Strategy Model\n<img src=\"https://static.tigerbbs.com/abf2046cc3248e59470374242dbce4c5\" tg-width=\"640\" tg-height=\"260\">Source: Yves Sukhu\nAs seen, I have separated the strategy diagram into three lanes:\n<ol>\n <li>Objectives lane:summary of longer-term financial objectives (i.e. beyond FY ’22).</li>\n <li>Initiatives lane:high-level description of WMT business initiatives to drive financial objectives.</li>\n <li>Investments/Enablers lane:horizontal tactics to support business-level initiatives.</li>\n</ol>\nThe basic idea behind the figure is simple: each lane is driven by the lane beneath it. Thus, corporate objectives are driven by the specified initiatives, and the various initiatives are driven by the specified enabling investments. I should point out that Figure 5 is my effort to offer a basic diagram that outlines the key elements of Walmart’s strategy. Accordingly, the point is not to “nitpick” every aspect of the company’s plan, but rather to “zero in” on those strategic aspects that will be most meaningful to sales and profit growth over the long run. In the following sub-sections, I offer context around each lane with emphasis on relating specific elements to market opportunities/sales growth. Please note that any subsequent quotes without a specific hyperlink are referenced from the aforementioned&nbsp;Q1 FY ’22 Investment Community Meetingtranscript.\nStrategy Model: Investment / Enablers Lane\nWalmart expects “...CapEx...to be around $14 billion in [FY ‘22] with most of the increase versus last year in the US”. The majority of the spend will be allocated toward supply chain improvements, eCommerce, and technology.\nFigure 6: WMT CapEx Allocation By Business Segment\n<img src=\"https://static.tigerbbs.com/c95ca5b352d5a0791815aac01019da3f\" tg-width=\"640\" tg-height=\"509\">Source:Walmart Q1 FY ’22 Investment Community Meeting Presentation\nFigure 7: WMT CapEx Allocation By Horizontal Category\n<img src=\"https://static.tigerbbs.com/8ac563b68aadaa022c90f83592895dcd\" tg-width=\"640\" tg-height=\"509\">Source:Walmart Q1 FY ’22 Investment Community Meeting Presentation\nIt is noteworthy, as seen in Figure 7, that the company is largely focused on enhancing its existing physical footprint, while simultaneously expanding its digital presence. Management explains “...we need to lean in more aggressively in key markets with increased capital in fulfillment capacity, supply chain, automation, and technology. This new infrastructure will allow us to expand eCommerce assortment, enabling us to reduce both shipping time and cost. We'll step-up automation in [distribution centers and]...we'll continue to refresh our existing stores by enhancing pickup and delivery capacity, merchandising programs and efficiency initiatives.” Accordingly, the enabling tactics in the bottom lane will run horizontally across WMT’s business segments to “...accelerate the company’s top-line and profit growth in the mid- to long-term.”\nStrategy Model: Initiatives Lane\nThe Initiatives lane captures five important growth activities underpinned by the enabling CapEx investments just discussed. It should be noted that the initiatives are not isolated efforts. For example, WMT’s overall goal to grow its enterprise eCommerce business is closely intertwined with growth of its Sam’s Club and India operations. Rather then, there is a degree of overlap between initiatives – as there should be: an effective strategy is ideally self-reinforcing. Details of the five initiatives are outlined as follows.\n<ul>\n <li>Grow eCommerce to $200B.WMT’s enterprise eCommerce sales exceeded $65B in FY ’21, recording strong results for Q1 FY ‘22 as well with year-over-year gains of 37%, 166%, 60%, 116%, and 47% for the company’s US, Mexico, China, Canada, and Sam’s Club operations respectively. Indeed, “[the company] is one of the largest eCommerce companies in the world,approaching $100 billion in revenue in the next couple of years, and [management believes] $200 billion a few years after that.\"</li>\n</ul>\n<ul>\n <li>Expand in-store service ecosystem.As already mentioned, pickup and delivery expansion is a key store refresh activity. Management notes that while they have “...one of, if not the largest, pickup businesses in the world”, they are often unable to meet demand. Through store remodeling, supply chain efficiencies, and higher wages for associates, the company hopes to improve on the 6 billion items either shipped or delivered in FY ’21. Additionally, like many of its competitors, WMT is looking beyond selling merchandise, and focusing on services that expand its relationship with its massive customer base, particularly&nbsp;Walmart Health&nbsp;and financial services initiatives. Management explains that “we can do more to serve the healthcare needs of families. They want and need high quality preventative, accessible and affordable healthcare...Our locations, which enable access; our large stores and large parking lots, which give us room to expand; our experience with the associate benefits, where we cover a lot of lives; and our growing digital capabilities; together theycreate the opportunity for a differentiated omni-channel healthcare businessthat helps a lot of people.” Just as the company focuses on lowering the barrier to quality healthcare, WMT similarly seeks to “...develop and offer innovative and affordable financial solutions...[given that] customers have been clear that they want more from [Walmart] in terms of financial services.”</li>\n</ul>\n<ul>\n <li>Sam’s Club growth.Sam’s Club, reflecting “one of the fastest growing segments in the retail industry”, posted $16.7B in revenue for Q1 FY ’22, representing ~10% growth year-over-year, and membership income jumped 12.7%. Such growth comes against strong overall performance in FY ’21 as well which saw ~15% comparable sales growth year-over-year. The segment which “on its own...would rank near the top 50 in the Fortune 500...[is] a $75 billion club business globally...[and] a winner in three key markets; in the US, Mexico, and China.”</li>\n</ul>\n<ul>\n <li>India.WMT has made sizable bets, particularly its investments in Flipkart and PhonePE, in an effort to exploit India’s growing middle class and burgeoning eCommerce market,citing a recent Bain &amp; Company report suggesting the latter growing to $90B - $100B by 2025. Further, management details the advantageous demographic shift within the country, noting that “...India has roughly 1.4 billion people today. 34% of the population are millennials, young people. By 2030, there is an estimate that this young population of millennials and Gen Z will be 75% of the total population. 700 million Indians are digital today.” As with its US strategy, WMT seeks a broader relationship – beyond merchandise – with its Indian client base. PhonePE, for example, offers a suite of app-based services including money transfer, bill payment, insurance, and online ordering/delivery. Clearly, Walmart – as well as its competitors – has a significant opportunity in India, enabled by “...a unique combination of a big market, completely digital, getting wealthier, and very young.”</li>\n</ul>\n<ul>\n <li>Alternative revenue streams.“[Higher margin] alternative revenue streams like advertising and Walmart Fulfillment Services are gaining traction and are expected to become a larger portion of profit growth in the future including FY 2022.” In the case of the former, Walmart Connect is the company’s foray as an omni-channel media company that takes advantage of the organization’s various digital properties and marketing expertise to directly connect brands with customers. Lest anyone question the company’s ambitions, “five years from now, [management expects] to be well within the top 10 advertising platforms in the US, ahead of big players like Hearst, Fox, and Twitter.” Indeed, WMT notes Walmart Connect isanticipated to grow by 60% in FY ’22 and “...should be a multibillion-dollar business in the very near future.”</li>\n</ul>\nStrategy Model: Objectives Lane\nIf all goes according to plan – if WMT’s enabling investments can properly “fuel” its key initiatives – the company expects to be “in position for 4%-plus sales growth and operating income growth rates higher than sales...[and]&nbsp;4% top-line growth would basically be the equivalent of adding a Fortune 100 company every year.” Should the level of required CapEx concern some investors, management offers that “...while [CapEx of 2.5% - 3%] is higher than the past few years, it is far below the CapEx peak of 4% to 5% of sales during the period of heavy supercenter growth.”\nJumping Into the DCF Analysis\nAgainst the backdrop of WMT’s plan – and if the long-term 4% top-line growth rate is achieved – how might we value the firm today? Here are the assumptions I used to build a DCF model over the period FY ’22 - FY ‘30:\n<ul>\n <li>(2.0%) revenue decline in FY ’22:I estimate a small “low single digits” decline based on management’s FY ’22 guidance.</li>\n <li>2.0% revenue growth from FY ’23 – FY ’25, and 4.0% revenue growth beyond FY ’25:This approach provides a ramp to management’s top-line objective of 4.0% growth.</li>\n <li>3.75% average FCF margin:I assume that over the forecast period, WMT’s average FCF margin will mirror its average FCF margin over the past 5 fiscal periods.</li>\n <li>Discount factor of 5.37%.This is a blend of industry cost of capital data provided byAswath Damodaranfor Retail – General and Retail – Online.</li>\n <li>Terminal value of $627B.To estimate the terminal value, I blended perpetual growth and exit multiple methods. For the perpetual growth calculation, I assume a 2% perpetual rate.</li>\n <li>2.0% share reduction in FY ’22. I assume 2.75B shares outstanding.</li>\n</ul>\nAccordingly, forecasted cash flows and the DCF model itself are as follows:\nFigure 8: Forecasted Cash Flows\n<img src=\"https://static.tigerbbs.com/6473902a88bba6b22e2b53663d5962d5\" tg-width=\"640\" tg-height=\"113\">Source: Yves Sukhu\nFigure 9: DCF Model\n<img src=\"https://static.tigerbbs.com/60a8f7c10efbba32b46a65085b90e26b\" tg-width=\"611\" tg-height=\"193\" referrerpolicy=\"no-referrer\">\nAs seen, the DCF model outputs a price per share of $177.36; not quite $180, but in the ballpark.\nBut is the model realistic? On the one hand, the model could be consideredtoo conservativesince management is actually targeting consolidated sales growthabove4% via their strategy. Further, as they push enabling investments, particularly those in automation, my FCF margin assumption may be too low. Yet, on the other hand, any number of things could go wrong with management’s plan, in which case the model is too aggressive. For example, while both Flipkart and PhonePE command multi-billion dollar valuations, consistent profitability remains elusive. On that point, Walmart has made a large strategic bet on India; but it is a bet that is fraught with challenges and may not – in fact – bear fruit.\nPerhaps, in the best case, the DCF model suggests that there issomeupside with shares trading around ~$142; but it (naturally) is based on assumptions, any of which could be completely wrong.\nConclusion\nDo I think WMT will reach $180/share in the near term? Personally, I am a bit skeptical, if still hopeful. However, I feel the mid-point of ~$160/share (in terms of where shares are trading today and the high-side target) is reasonable based on current market valuations and management’s ability to execute against its plan. On that basis, and with perhaps ~13% upside from the current $142/share level, WMT may not find investors tripping over themselves to buy in; and as other SA authors have pointed out, the stock is not necessarily cheap. But as management continues their disciplined execution of their strategy, I, at least, am leaning toward “more things going right” than “more things going wrong”. As such, I am in the “buy” camp, even as I eye the $180/share camp with caution.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Walmart's Path To $180/Share</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nWalmart's Path To $180/Share\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-31 20:32 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4432101-walmart-path-to-180-usd-stock-price>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nDeutsche Bank and Citigroup recently raised their price targets for Walmart to ~$180/share.\nWith shares trading around $142/share, this target price implies more than 25% upside. Are the ...\n\n<a href=\"https://seekingalpha.com/article/4432101-walmart-path-to-180-usd-stock-price\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"WMT":"沃尔玛"},"source_url":"https://seekingalpha.com/article/4432101-walmart-path-to-180-usd-stock-price","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1168423433","content_text":"Summary\n\nDeutsche Bank and Citigroup recently raised their price targets for Walmart to ~$180/share.\nWith shares trading around $142/share, this target price implies more than 25% upside. Are the analysts right?\nI present two possible “paths” to the high-side target: (1) a P/S path and (2) a DCF path backed by the company’s strategy.\n\nPhoto by Scott Olson/Getty Images News via Getty ImagesJust Getting Started\nDuring Walmart’s (WMT) recent Q1 FY ’22 Investment Community Meeting, CEO Doug McMillon, recounting his early years with WMT when it was already a large organization, intimated that the company is “just getting started”. Analysts, particularly the likes of Deutsche Bank (DB) and Citigroup (C), may certainly hope so given that their high-side price targets for WMT are circling around a bullish $180/share.\nFigure 1: A Few High-Side Analyst Price Targets for Walmart\n\nData Source: MarketBeat.com\nTable Source: Yves Sukhu\nNotes:\n\nData as of 5/25/21.\n\nKeep in mind that shares are trading around $142/share at the moment – meaning the high-side estimates imply more than 25% upside; upside that might seem a bit uncertain against FY ’22 guidance:\n\nConsolidated net sales decline:despite consolidated net sales of $138.3B in Q1 FY ’22, representing 2.7% year-over-year growth, net revenue in FY ’22 is expected to decline in the low single-digits in constant currency, although the decline is largely attributed to divestiture activity, including the divestitures of WMT’s UK, Japan, and Argentina businesses. Excluding divestitures, consolidated net sales are expected to grow in the low-to-mid single-digits.\n\n\nConsolidated operating income decline:operating income is expected to decline in the low-to-mid single-digits, again largely due to divestiture activity. Excluding divestitures, operating income is anticipated to increase slightly.\n\n\nPandemic headwinds remain as tailwinds subside:WMT benefited from US stimulus spending during the first quarter. However, as further stimulus looks increasingly unlikely, management noted during their Q1 FY ’22 earnings call that“...certain international markets continue to be negatively affected by the resurgence in COVID cases and related government restrictions and operations, particularly in India and Canada.”\n\nBeyond management guidance, how, exactly, would the $560B retailer grow into the target when it is arguable that the stock is already expensive,when considering a forward PE north of 26 contrasted against a historical P/E average of ~20 over the last 10 fiscal periods?\nFigure 2: Walmart Historical P/E Over Last 10 Fiscal Periods\n\nData Source:MacroTrends.net\nChart Source: Yves Sukhu\nOf course, if one were to discount the P/E expansion in recent years, we would arrive at a historical P/E average under 15 making the stock even more expensive than it arguably already is.\nPutting historical P/E comparisons aside for the moment, as I am long WMT, I would like to believe that the high-side analysts are right. Under that assumption, I explore Walmart’s path to $180/share. To be clear, I’m not saying the high-side analysts are correct; only that I am attempting to understand how Walmart could conceivably “get there”.\nA Path by Price-to-Sales\nEven without reading Deutsche Bank’s and Citigroup’s notes to its clients on WMT, one would reasonably assume that both firms are confident in the company’s ability to execute against its general strategy, and to propel itself forward to their suggested price targets. But Walmart’s strategy aside – a topic to be discussed in more detail later – perhaps there is reason to think WMT’s current share price is undervalued on a P/S basis.\nFigure 3: Walmart and Selected Competitor Statistics\n\nData Source: Yahoo Finance\nTable Source: Yves Sukhu\nNotes:\n\nData as of market close 5/26/2021.\n\nAs seen in Figure 3, WMT’s P/S lags its selected peers. For argument’s sake, if one were to assume a P/S ratio of 0.95, equal to that of Costco (COST), would be reasonable (relative to the chosen peer group), simple math pushes the share price well above $180/share.\nFigure 4: WMT Share Price Using P/S = 0.95\n\nSource: Yves Sukhu\nIn this simple analysis here, I am not saying WMT necessarily deserves a P/S ratio of 0.95. But it is interesting to note from Figure 3 that WMT and COST are both in the same “ballpark” in terms of operating and profit margin. On that isolated basis, perhaps there is, at least, some argument to be made for a higher P/S multiple in the near term. Yet, this line of thinking is naturally based on “where the market is right now”.WMT’s average historical P/Sis much lower, and the same is also true for COST. Accordingly, a P/S-centric argument for $180/share sits upon the rather capricious whims of current investor sentiment.\nA Path by Strategy\nWe arguably find stronger footing for WMT’s high-side targets in consideration of the company’s go-forward plan. Management, in fact, believes its strategy will eventually support 4%+ top-line year-over-year growth. On that metric alone, a DCF model can be built to estimate the firm’s value if the plan “holds”. However, before jumping into the DCF analysis, it is worthwhile reviewing the key elements of Walmart’s plan to understandhowmanagement plans to achieve its top-line growth target. I have generalized the strategy in the following figure, largely based on management comments during the Q1 FY ’22 Investment Community Meeting.\nFigure 5: WMT Strategy Model\nSource: Yves Sukhu\nAs seen, I have separated the strategy diagram into three lanes:\n\nObjectives lane:summary of longer-term financial objectives (i.e. beyond FY ’22).\nInitiatives lane:high-level description of WMT business initiatives to drive financial objectives.\nInvestments/Enablers lane:horizontal tactics to support business-level initiatives.\n\nThe basic idea behind the figure is simple: each lane is driven by the lane beneath it. Thus, corporate objectives are driven by the specified initiatives, and the various initiatives are driven by the specified enabling investments. I should point out that Figure 5 is my effort to offer a basic diagram that outlines the key elements of Walmart’s strategy. Accordingly, the point is not to “nitpick” every aspect of the company’s plan, but rather to “zero in” on those strategic aspects that will be most meaningful to sales and profit growth over the long run. In the following sub-sections, I offer context around each lane with emphasis on relating specific elements to market opportunities/sales growth. Please note that any subsequent quotes without a specific hyperlink are referenced from the aforementioned Q1 FY ’22 Investment Community Meetingtranscript.\nStrategy Model: Investment / Enablers Lane\nWalmart expects “...CapEx...to be around $14 billion in [FY ‘22] with most of the increase versus last year in the US”. The majority of the spend will be allocated toward supply chain improvements, eCommerce, and technology.\nFigure 6: WMT CapEx Allocation By Business Segment\nSource:Walmart Q1 FY ’22 Investment Community Meeting Presentation\nFigure 7: WMT CapEx Allocation By Horizontal Category\nSource:Walmart Q1 FY ’22 Investment Community Meeting Presentation\nIt is noteworthy, as seen in Figure 7, that the company is largely focused on enhancing its existing physical footprint, while simultaneously expanding its digital presence. Management explains “...we need to lean in more aggressively in key markets with increased capital in fulfillment capacity, supply chain, automation, and technology. This new infrastructure will allow us to expand eCommerce assortment, enabling us to reduce both shipping time and cost. We'll step-up automation in [distribution centers and]...we'll continue to refresh our existing stores by enhancing pickup and delivery capacity, merchandising programs and efficiency initiatives.” Accordingly, the enabling tactics in the bottom lane will run horizontally across WMT’s business segments to “...accelerate the company’s top-line and profit growth in the mid- to long-term.”\nStrategy Model: Initiatives Lane\nThe Initiatives lane captures five important growth activities underpinned by the enabling CapEx investments just discussed. It should be noted that the initiatives are not isolated efforts. For example, WMT’s overall goal to grow its enterprise eCommerce business is closely intertwined with growth of its Sam’s Club and India operations. Rather then, there is a degree of overlap between initiatives – as there should be: an effective strategy is ideally self-reinforcing. Details of the five initiatives are outlined as follows.\n\nGrow eCommerce to $200B.WMT’s enterprise eCommerce sales exceeded $65B in FY ’21, recording strong results for Q1 FY ‘22 as well with year-over-year gains of 37%, 166%, 60%, 116%, and 47% for the company’s US, Mexico, China, Canada, and Sam’s Club operations respectively. Indeed, “[the company] is one of the largest eCommerce companies in the world,approaching $100 billion in revenue in the next couple of years, and [management believes] $200 billion a few years after that.\"\n\n\nExpand in-store service ecosystem.As already mentioned, pickup and delivery expansion is a key store refresh activity. Management notes that while they have “...one of, if not the largest, pickup businesses in the world”, they are often unable to meet demand. Through store remodeling, supply chain efficiencies, and higher wages for associates, the company hopes to improve on the 6 billion items either shipped or delivered in FY ’21. Additionally, like many of its competitors, WMT is looking beyond selling merchandise, and focusing on services that expand its relationship with its massive customer base, particularly Walmart Health and financial services initiatives. Management explains that “we can do more to serve the healthcare needs of families. They want and need high quality preventative, accessible and affordable healthcare...Our locations, which enable access; our large stores and large parking lots, which give us room to expand; our experience with the associate benefits, where we cover a lot of lives; and our growing digital capabilities; together theycreate the opportunity for a differentiated omni-channel healthcare businessthat helps a lot of people.” Just as the company focuses on lowering the barrier to quality healthcare, WMT similarly seeks to “...develop and offer innovative and affordable financial solutions...[given that] customers have been clear that they want more from [Walmart] in terms of financial services.”\n\n\nSam’s Club growth.Sam’s Club, reflecting “one of the fastest growing segments in the retail industry”, posted $16.7B in revenue for Q1 FY ’22, representing ~10% growth year-over-year, and membership income jumped 12.7%. Such growth comes against strong overall performance in FY ’21 as well which saw ~15% comparable sales growth year-over-year. The segment which “on its own...would rank near the top 50 in the Fortune 500...[is] a $75 billion club business globally...[and] a winner in three key markets; in the US, Mexico, and China.”\n\n\nIndia.WMT has made sizable bets, particularly its investments in Flipkart and PhonePE, in an effort to exploit India’s growing middle class and burgeoning eCommerce market,citing a recent Bain & Company report suggesting the latter growing to $90B - $100B by 2025. Further, management details the advantageous demographic shift within the country, noting that “...India has roughly 1.4 billion people today. 34% of the population are millennials, young people. By 2030, there is an estimate that this young population of millennials and Gen Z will be 75% of the total population. 700 million Indians are digital today.” As with its US strategy, WMT seeks a broader relationship – beyond merchandise – with its Indian client base. PhonePE, for example, offers a suite of app-based services including money transfer, bill payment, insurance, and online ordering/delivery. Clearly, Walmart – as well as its competitors – has a significant opportunity in India, enabled by “...a unique combination of a big market, completely digital, getting wealthier, and very young.”\n\n\nAlternative revenue streams.“[Higher margin] alternative revenue streams like advertising and Walmart Fulfillment Services are gaining traction and are expected to become a larger portion of profit growth in the future including FY 2022.” In the case of the former, Walmart Connect is the company’s foray as an omni-channel media company that takes advantage of the organization’s various digital properties and marketing expertise to directly connect brands with customers. Lest anyone question the company’s ambitions, “five years from now, [management expects] to be well within the top 10 advertising platforms in the US, ahead of big players like Hearst, Fox, and Twitter.” Indeed, WMT notes Walmart Connect isanticipated to grow by 60% in FY ’22 and “...should be a multibillion-dollar business in the very near future.”\n\nStrategy Model: Objectives Lane\nIf all goes according to plan – if WMT’s enabling investments can properly “fuel” its key initiatives – the company expects to be “in position for 4%-plus sales growth and operating income growth rates higher than sales...[and] 4% top-line growth would basically be the equivalent of adding a Fortune 100 company every year.” Should the level of required CapEx concern some investors, management offers that “...while [CapEx of 2.5% - 3%] is higher than the past few years, it is far below the CapEx peak of 4% to 5% of sales during the period of heavy supercenter growth.”\nJumping Into the DCF Analysis\nAgainst the backdrop of WMT’s plan – and if the long-term 4% top-line growth rate is achieved – how might we value the firm today? Here are the assumptions I used to build a DCF model over the period FY ’22 - FY ‘30:\n\n(2.0%) revenue decline in FY ’22:I estimate a small “low single digits” decline based on management’s FY ’22 guidance.\n2.0% revenue growth from FY ’23 – FY ’25, and 4.0% revenue growth beyond FY ’25:This approach provides a ramp to management’s top-line objective of 4.0% growth.\n3.75% average FCF margin:I assume that over the forecast period, WMT’s average FCF margin will mirror its average FCF margin over the past 5 fiscal periods.\nDiscount factor of 5.37%.This is a blend of industry cost of capital data provided byAswath Damodaranfor Retail – General and Retail – Online.\nTerminal value of $627B.To estimate the terminal value, I blended perpetual growth and exit multiple methods. For the perpetual growth calculation, I assume a 2% perpetual rate.\n2.0% share reduction in FY ’22. I assume 2.75B shares outstanding.\n\nAccordingly, forecasted cash flows and the DCF model itself are as follows:\nFigure 8: Forecasted Cash Flows\nSource: Yves Sukhu\nFigure 9: DCF Model\n\nAs seen, the DCF model outputs a price per share of $177.36; not quite $180, but in the ballpark.\nBut is the model realistic? On the one hand, the model could be consideredtoo conservativesince management is actually targeting consolidated sales growthabove4% via their strategy. Further, as they push enabling investments, particularly those in automation, my FCF margin assumption may be too low. Yet, on the other hand, any number of things could go wrong with management’s plan, in which case the model is too aggressive. For example, while both Flipkart and PhonePE command multi-billion dollar valuations, consistent profitability remains elusive. On that point, Walmart has made a large strategic bet on India; but it is a bet that is fraught with challenges and may not – in fact – bear fruit.\nPerhaps, in the best case, the DCF model suggests that there issomeupside with shares trading around ~$142; but it (naturally) is based on assumptions, any of which could be completely wrong.\nConclusion\nDo I think WMT will reach $180/share in the near term? Personally, I am a bit skeptical, if still hopeful. However, I feel the mid-point of ~$160/share (in terms of where shares are trading today and the high-side target) is reasonable based on current market valuations and management’s ability to execute against its plan. On that basis, and with perhaps ~13% upside from the current $142/share level, WMT may not find investors tripping over themselves to buy in; and as other SA authors have pointed out, the stock is not necessarily cheap. But as management continues their disciplined execution of their strategy, I, at least, am leaning toward “more things going right” than “more things going wrong”. As such, I am in the “buy” camp, even as I eye the $180/share camp with caution.","news_type":1},"isVote":1,"tweetType":1,"viewCount":108,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":7,"xxTargetLangEnum":"ORIG"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/110509913"}