Key Trends That Drive Wal-Mart’s $71 Value

We look at some of the key factors that drive Wal-Mart’s sales (NYSE:WMT). The economic recovery has been rather slow and the impending euro-crisis has made the situation more fragile for the world’s largest retailer. Customers have become more vigilant and want to spend their money judiciously. Consequently, the retail industry is undergoing a major shift amidst volatile economic conditions and the growing popularity of online retailers like Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY).

We maintain a $71 price estimate for Wal-Mart’s stock, implying about 5% premium to the current market price.

See our full analysis for Wal-Mart

Focus on social media and technology

• Wal-Mart has made strong efforts to become technologically advanced and has leveraged social media in order to reach its prospective customers. Its digital technology unit, @WalmartLabs, creates platforms and products around social and mobile commerce. Since its inception, @WalmartLabs has been actively scouting for acquisitions.
• It announced the integration with Facebook and acquired Yihaodian, a Chinese e-commerce platform. It has also acquired Kosmix, a social media company, which enables users to filter and organize content in social networks.
• In November 2011, it acquired Grabble, a maker of point of sale technology that ties in with mobile phones.

Price leadership drives retail sales

• Wal-Mart uses its enormous size and buying power to put pressure on its suppliers to sell goods at low prices. In return, suppliers have an incentive to sell a large volume of goods. The company then passes these savings to its customers. It has successfully influenced companies like General Mills to reduce costs by implementing redesigns of its products and packaging.

Wal-Mart pushing more into electronics

• Since the closure of Circuit City in 2009, a specialty electronics retailer, Wal-Mart has intensified its push into electronics in order to increase market share. It has been training its staff and offering discounts.
• Recent reports indicate that retailers like Wal-Mart and Amazon actually gained consumer electronics market share while Best Buy and RadioShack have lost some.

Looking at international frontiers for growth

• Wal-Mart is keen on expanding in emerging countries as growth has saturated in developed countries. In 2011, Wal-Mart acquired a 51% stake in Massmart for $2.4 billion. Massmart runs nine wholesale and retail chains with approximately 288 stores in 14 African countries. Wal-Mart believes that South Africa is a key market for growth and accounts for roughly 20% of consumer spending in the African continent.
• It is also looking at ways to enter India after the announcement by the Indian government in November 2011 that enables overseas companies to own as much as 51% of retailers selling more than one brand.

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