INVESTMENT ANALYSIS

Technical and Investment Analysis of Wal-Mart

Technical and Investment Analysis of Wal-Mart

Introduction

Wal-Mart Stores is the world's largest retailer and grocery chain by sales. According to its annual report, the company generated consolidated revenue of $419.0 billion in fiscal 2010 (latest annual data available) through its 8,970 stores worldwide (Data Monitor, 2012). The company leverages its massive size to exert high buying power to its suppliers; as such, it can obtain significant cost savings and pass them down to consumers in the form of heavily discounted prices.

Business Description

Wal-Mart operates three separate divisions: Wal-Mart US, representing 62.1% of revenue and 42.4% of establishments; Sam's Club, representing 11.8% of revenue and 6.8% of establishments; and Wal-Mart International, representing 26.1% of revenue and 50.8% of establishments (Wal-Mart Inc, 2012). Under the Wal-Mart US division, the company runs Supercenters that offer general merchandise and a full-line supermarket as well as general discount stores that offer the same products but no perishable groceries. Only Wal-Mart US's general discount stores represent major players within the industry; the retailer's remaining operation (including Supercenters) is accounted in the Warehouse Clubs and Supercenters industry (Ibis World, 2012a).

Wal-Mart's first discount store opened in 1946 with the name of Wal-Mart Discount City. Today, there are more than 800 discount stores in the United States and most are open 24 hours (Data Monitor, 2012). General discount stores retail a wide assortment of general merchandise, such as apparel, electronics, toys, health and wellness products, home furnishings and house-wares. In the five years to 2011, however, the number of discount stores has been declining at the expense of Supercenters, from 1,083 locations in 2006 to 708 stores in 2010; the number of Supercenters increased from 2,262 to 2,907 (Data Monitor, 2012). As a result, Wal-Mart's share of Department Stores industry revenue has been falling steadily over the five-year period.

Economic Analysis

For the year 2011, consumer spending increased by 2.7% reaching one of its highest levels, while per capita retail sales were back to where they were in the fall of 2008. As consumers spent more, the world's largest economy expanded at an annual rate of 1.8% — after sinking deep into recession in 2009. According to the Federal Reserve, core inflation for 2011 is expected to hit between 1.3% and 1.6%, and is estimated to be at 1.3% to 1.8% in 2012 (Ibis World, 2012a).

The Dow Jones Industrial Average rose 11.67% or 1,314.04 points to 12,569.79. The Standard & Poor's 500 finished at 1,345.2, an all-time high since the retail index's inception in 2007 (Ibis World, 2012b). The impressive stock and index performances for six months to May 31, 2011, was much needed as the retail sector braced itself for rising inflation that is set to hit in the coming months. US GDP is anticipated to rise at an average annual rate of 1.8% over the same period (Ibis World, 2012b). Typically, an industry is considered to be in a decline phase of its life cycle when industry growth falls below ...