Plan to Accelerate Initiatives and Maintain/Gain Share Going Forward
On 6/5/09, Wal-Mart hosted its 39th annual shareholders’ meeting in Bentonville,
led by new CEO, Mike Duke, who is focused on accelerating the current initiatives
to drive margins. After hearing from all 3 businesses, we continue to believe the
company is one of the sharpest operators in the retail space. Wal-Mart has gained
significant market share during the economic slowdown & we believe the
initiatives currently in place will allow them to build on this and drive operating
margins and strong FCF going forward. Reiterate Buy rating.

New Share Repurchase Program Announced After Dividend Increase
Wal-Mart’s Board of Directors approved a new $15B (7.5% of market cap) share
repurchase program to replace the previous $15B program announced in 2007
(with approximately $3.4B remaining under authorization). In the last two years,
Wal-Mart returned $11.5B to shareholders through share repurchases and $7.5B
through dividends. In March, the Board increased the annual dividend by 15% to
$1.09 per share, representing a dividend yield of 2%. This speaks to Wal-Mart’s
financial strength and their ability to drive FCF in a challenging economic
environment, when many companies are cutting or eliminating dividends.
Maintaining Our FY09, FY10 & FY11 EPS Estimates
Wal-Mart made no comment on EPS at the shareholders’ meeting, though we are
incrementally more confident in our Q2:09 EPS est of $0.86, which is in-line with
Consensus and near the mid-point of management guidance ($0.83 - $0.88). Risk
remains to the upside as Q2 comps are guided to +0-3% and we model +1.5%
comp for Q2:09. We maintain our $3.55 FY08 EPS est (+3.9% y/y), our FY10 est of
$4.07 and our FY11 est of $4.50 (+10.4% y/y).
Valuation Attractive
WMT trades at 12.5x our $4.07 FY10 EPS estimate, a deep discount to its 10-yr FY
avg multiple of 22.0x. Our $64 PT is based on 15.7x our FY10 est, a discount to
WMT’s 10-yr CY ave P/E, but a premium to the market multiple, which is
appropriate given Wal-Mart’s above-market growth. We recommend purchase of
WMT shares given the company’s very strong competitive positioning in a difficult
consumer-spending environment. Risks include: a general spending slowdown,
merchandising errors, a strengthening U.S. dollar, and international expansion.