Walmart Case Study

Contents

Economic Outlook        3

Key Fundamental Factors        4

SWOT Analysis        5

Porter’s 5 Forces        6

Competitive Advantages        7

Valuation of Wal-Mart        9

Dividend Discount Model        9

Three Stage Model        10

P/E Approach        12

Recommendation        13

Appendix        14

References        16

Economic Outlook

Walmart is a well-known company in the industry of consumer staples sector. This industry is mainly considered as counter-cyclical or defensive sector. People will continue to buy the goods offered from Walmart regardless of how the economy is doing. We can even say that sometimes, in a recession people who use to buy luxurious brands will shift their spending to their everyday life necessities. It offers its customer a very wide range of products with best prices when compared to its competitors Sears and Target. A report, conducted by PricewaterhouseCoopers LLP, retail supports around 42 million jobs, provides $1.6 trillion in labor income and contributes $2.6 trillion annually to U.S. GDP.

As we notice from exhibit 2 in the case, stock price of Walmart move inversely to S&P500 which explains the low beta 0.655 calculated and shown in exhibit5.

After the period of great depression starting 2007-2009, the economy as of February 2010, has been recovering. Meanwhile, the industry continues to retain and be very careful from expansion plans. Retailers and their suppliers have had to work as one team together to benefit from the expected growth they will witness once the economy turns.

At the date of analyzing and valuing Walmart, many key fundamental economic had a better outlook.

Key Fundamental Factors

1. Labor Market: At the period post-recession the unemployment rates showed a better outlook, hence rates had decreased. Noting that employer’s confidence all relies on the consumer’s confidence in order for them to make profit, have a better financial position hence, generating new job opportunities and hence decreasing the unemployment rate.

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Appendix 1 (Unemployment rate in US)

1. Consumer’s Confidence: At that period of time consumer confidence was considered to be at a 59 % percent lower than the level considered on July 2007. Moreover, Business confidence remains exceptionally fragile. Business and consumer confidence can as well be affected by the credit conditions offered in the economy

1. Credit Condition: As of that period the willingness of commercial banks has been restricted by standards that continue in tightening the scope of lending. All this restriction set by federal and regulatory policies that impose monetary policies to keep track of inflation and the wellbeing of the present economy.

1. Monetary policy and inflation: Federal Reserve at that time had no intention to play around interest rates since any change would jeopardize the recovery of the market and maintaining the inflation.

SWOT Analysis

Strengths

• Walmart is a powerful retail brand (strong brand name)
• People can get a big variety of products from one place
• Good value of money for the quality of products
• Many branches so that it is convenient for customers to reach
• Good reputation
• Advanced Information system
• Focuses on their customer needs
• Great distribution system
• The huge volume they got from suppliers make them get discounts leading to low prices to customers

Weaknesses

• Antiunion reputation
• HR policies
• High staff turnover because of low salaries
• Hiring part timers more than full timers
• Since it’s the largest retailer in US, all media and government are looking closely at it.
• Presence in few markets worldwide

Opportunities

• Expanding to the Chinese, European and African markets.
• Increasing online sales
• Introducing new items that go with the global trend “Going green and saving the environment”

Threats

• Successful businesses lead to a higher desire to compete with.
• Existence of internet based grocery stores
• Financial crisis recovery
• New stricter policies and regulations
• People and the culture in newly open countries may not support foreign brands and stores

Porter’s 5 Forces

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1. Threat of new entrants:

Easy to enter but it’s hard to survive and satisfy customer needs

Offering discounted prices as Wal Mart over a wide variety of products is difficult

1. Bargaining power of supply:

The huge volume of supplies from its suppliers will make it hard for them to lose such a potential customer

1. Intensity of competitive rivalry:

Several competitors

Industry profitability

Fierce competition among several sectors

1. Threat of substitute product:

Existence of different brands with low prices

Big varieties exist within their competitors stores