...which if this magnitude happens would be the biggest one day fall since 1988...
...that was possibly a wise move. So what was said? Here are a few headlines:
- Shares of $WMT gyrate after comments from shareholders meeting; CFO says expects flat sales in FY16
- $WMT saying FY17 EPS will fall 6-12% driven by increased spending on wages
- Wal-Mart CFO: Sales now expected to be flat in fiscal 2016.
- Wal-Mart CEO says investments in tech and people will continue to pressure earnings next year
As I noted back in August in the above piece when I reviewed the status of the company and its turnaround plans and pulled it together into some valuation thoughts:
'We are getting closer to value but for me the continued deterioration of the earnings line has pulled that number further down. A 5% free cash flow yield on Wal-Mart is around US$65/share, a single digit EV/ebit multiple nearer US$60. The three year chart may shout support but my instinct is that it is still too early in an industry which is still volatile/seeing change and competition'.
Clearly that single digit EV/ebit multiple is going to be lower now, at the very least below US$55 a share, a price approaching the lowest bound of the 5 year range:
The important question however is to ask whether this is deeply structural with Wal-Mart. Tesco's after all in the UK as the market behemoth who lost their mojo as more customers wanted a different experience elsewhere. Wal-Mart has few issues with discounters but it may be struggling with the lack of real wage growth for its core consumer group and - of course - a commitment to raise the wages of its own workforce as noted above.
As I detailed in August the turnaround plan is centred on funding extra capex/wages with lower costs and simplification which sounds sensible, certainly with Wal-Mart's strong balance sheet (net debt around x1 historic ebitda). No surprises that they have announced a US$20bn buyback (just over 10% of the market cap!) then at a certain level.
Clearly scepticism is going to remain high for a while - and my instinct is to wait for this prospective single digit EV/ebit level again, which suggests around a US$55 entry price statically. The buyback and 3%+ dividend yield (see below) are undoubtedly supports.
As this piece (from which I took the above dividend chart) correctly observes:
I think capital growth investors wait for US$55 at today's newsflow. Longer-term income/total return investors cannot really be criticised for giving a sub US$60 level a go so long as they have a 2-3 year minimum holding period in mind.
Interesting times at Wal-Mart.