Wal-Mart Stores Inc.WMT

Morningstar Rating

Stock Research and Analysis

by Joel Bloomer

Wal-Mart Stores, with its $400 billion-plus in annual revenue, dominates the U.S. retail landscape and is growing quickly internationally. Unmatched scale relative to most vendors leads to favorable terms on everything from the products on its shelves to store leases and distribution agreements. Read more

Bulls Say

As the largest player in nearly all parts of its value chain, Wal-Mart's primary limiting factor in performance is its end customers--consumers--not vendors.

The recession is causing some consumers to trade down to Wal-Mart. According to the company, these customers have larger average ticket sizes because of the cost savings they experience by switching retailers.

Wal-Mart's reputation as a general retailer allows it to more easily shift its product mix to meet consumer demand compared with focused retailers. For example, as people eat more meals at home and spend less on discretionary entertainment, Wal-Mart can dedicate more floor space to groceries.

If the economic recovery is as mild as we expect, Wal-Mart should be able to continue its rapid growth internationally and slow but steady growth domestically.

As the current low-cost leader, Wal-Mart's moat would be very difficult to traverse without poor execution at the company, which would allow competitors to gain ground. Read more

Bears Say

A large number of discrimination lawsuits and the potential for material health-care reform could lead to higher labor costs to support Wal-Mart's roughly 2 million employees.

International expansion can be perilous in any business, especially those that are consumer-facing, where local customs can be very important.

Expansion through acquisition, especially on the scale necessary for Wal-Mart to grow, can lead to the destruction of shareholder capital if the firm overpays or is rejected by local consumers.

A quicker-than-expected economic recovery could allow consumers to trade up to higher-priced retailers. Read more

Strategy

Wal-Mart's strategy is to constantly squeeze efficiency out of its operations and pass these gains to customers. Part of this effort includes consolidating vendors and rationalizing stock-keeping units to minimize the inefficiencies that come with excessive product and stakeholder breadth. Read more

Management

Michael Duke, 59, became president and CEO in 2009. He was previously the firm's vice chairman and head of the international division. Duke received about $12 million of compensation in fiscal 2009, consisting primarily of stock and bonus. This amount will probably increase closer to the total compensation received by current chairman of the executive committee and former CEO (2000 to January 2009) H. Read more

Profile

Wal-Mart is the largest retailer in the U.S. and is gaining ground internationally. The firm is divided into three segments: Wal-Mart U.S. (64% of revenue, 3,700 stores), international (24%, 3,800), and Sam's Club (12%, 600). Read more

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