EQUITY VALUATION – WALMART
Equity valuation is a major tool used to analyse investment choices using the company’s past and current performance, in addition to its business plans, in order to forecast its future financial position and valuate the stock. This paper will examine and valuate Walmart based on my projection for the company’s performance over the next few years.
Wal-Mart Stores, Inc., branded as Walmart and traded on the NYSE as WME, is a multinational retail corporation headquartered in Bentonville, Arkansas (United States). The company, which is currently the world’s largest corporation by consolidated revenue and the world’s biggest employer, runs chains of large discount stores and warehouse stores in the US and in 26 other countries. The company was founded in 1962 by Sam Walton and still remains as a family-owned business. As of June 2013, the Walton family owned at least 50.9% of outstanding shares, up from 39% a decade ago.
Walmart is a retailer that belongs to the consumer staples sector and is currently the leader in the US retail market, accounting for 11.3% of all US sales. The company operates largely in three segments: Walmart USA, which accounted for 58.89% of the company’s sales revenue in 2013, Walmart International, which accounted for 29.01% of the sales revenue, and Sam’s Club, accounting for 12.10% of the total. The company operates in twenty six foreign countries through Walmart International, and Sam’s Club operates as a membership-based discount wholesaler in the US. In total, the company currently has around 11,000 retail units under 69 different banners in 27 countries and also has online stores in 10 countries.
Walmart USA’s strategy centres around its Everyday Low Price (EDLP) policy and in providing a deep assortment of products to the customers. Additionally, Walmart USA’s online stores currently serve about 130 million weekly customers in the US alone, which is why e-commerce has become an area of focus for the company. Walmart International’s focus is on expansion and improvement, as its operating margins have lagged behind the US segment, though they are consistently better than Sam’s Club’s margins. (2013:18) (2014:19)
In this paper I have used the discounted cash flow (DCF) model to value the firm and its equity, as well as other more specific methods to determine figures such as the equity cost. The first step in this valuation will be to analyse the performance of the company in the past ten years, and use these results, along with news and the company’s outlook, to then project the performance of the company in the future (2008:6). The DCF is a method widely used in the valuation of companies and it is considered to be the most accurate valuation method theoretically, though it is characterised for its high level of objectivity, which allows managers to manipulate it in a self-interested way. The most widely used method is the CAPM [REFERENCE], but as we are going to see it...