What Is Driving Our $101 Price Estimate For Wal-Mart?
Wal-Mart (NYSE:WMT) has had a fairly strong fiscal 2018 (ending January 2018), as the company’s 2017 performance has been mostly above its guidance and market expectations. In 2017, the retailer’s total revenue increased 3% year-over-year (y-o-y) to $500 billion, driven by 3% y-o-y growth in the U.S. business. Wal-Mart’s net growth was positively impacted by a 3% increase in overall comparable sales and the e-commerce business.
We have a $101 price estimate for Wal-Mart, which is almost 15% ahead of the current market price. Our interactive dashboard details our forecasts and estimates for the company. Below we outline the key drivers of our price estimate.
Overview Of Estimates
- Up 32% Since Beginning of This Year, Will Walmart’s Strong Run Continue Following Q2 Results?
- Up 15% This Year, Will Walmart Stock Rally Further After Q1 Results?
- Where Is Walmart Stock Headed Post Stock Split?
- Up 7% Already This Year , Where Is Walmart Stock Headed Post Q4 Results?
- Up 18% This Year, Will Walmart Stock Continue To Grow Past Q3?
- Can Walmart’s Stock Trade Lower Post Q2?
We expect Wal-Mart to generate around $511 billion in revenues in 2018, and earnings of almost $14 billion. Our revenue forecast of $511 billion represents year-on-year growth of around 2%. Of the total expected revenues in 2018, we estimate $330 billion in the Wal-Mart U.S. business, almost $120 billion for the Wal-Mart International business, and nearly $58 billion for the Sam’s Club business.
Wal-Mart’s assortment of online products has grown to nearly 75 million SKUs from a mere 2 million SKUs in 2015. Wal-Mart’s growth has been boosted by the company’s acquisitions – Jet.com, Hayneedle, Moosejaw, Shoebuy, and Bonobos – which have provided the company with a diverse product portfolio in categories like shoes and apparel, along with increased digital marketing expertise, eventually helping it face growing competition from internet retailers. So far this year, Wal-Mart has been rumored to be in talks to buy insurer Humana and pharmacy delivery startup PillPack, in addition to India’s top online retailer Flipkart – if these materialize, they would boost the company’s top line even further. Also, the retailer is planning to expand its online grocery program through its Postmates deal, whereby more than 40% of U.S. households will be covered by the expansion. In addition, the company is also planning to focus on North American core and key growth markets, in addition to China and India, going forward.
Wal-Mart Operating Divisions Forecast
We have calculated Wal-Mart’s total revenue in 2018 by estimating the revenues from the company’s domestic sales, international sales, Sam’s club sales and other income. Further, we have calculated the retailer’s divisional revenues by estimating the number of stores, square footage per store and revenue per square feet in 2018. We expect Wal-Mart’s 2018 store count in the U.S. to be over 4800, with an average square footage per store of 147k and revenue per square feet of $466, translating into $330 billion (+3% y-o-y) in domestic revenues in 2018. In addition, we also expect close to 6370 stores in international markets with an average square footage per store of 58k and revenue per square feet of $319, translating into $119 billion (+1% y-o-y) in international revenues in the same period. On similar lines, we expect Sam’s Club revenues to reach $58 billion (-2% y-o-y) in 2018, with 599 Sam’s Club stores, 134k square footage per store and $724 of revenue per square feet. We expect a decline here on the account of the closing of 63 Sam’s Club locations. 
Wal-Mart saw its stock gain nearly 50% in 2017, but it is now down more than 10% year-to-date as of April 19. Much of the stock decline was due to the slowdown in the company’s e-commerce growth in the fourth quarter to 23% y-o-y from a high level of 60%+ in the first quarter of 2017. This should not be a major concern to the investors as of now, as e-commerce constitutes only 4% of the company’s total revenues. Going forward, we expect the company to grow, albeit at a slower pace than that of 2017, as it continues to invest in its people and technology. Our valuation dashboard suggests that Wal-Mart’s valuation still has more upside.
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