Wal-Mart Stores, Inc. (WMT): This Company Is Capitalizing on Sunny Days

In 2004, Wal-Mart Stores, Inc. (NYSE:WMT) acquired its own electric company in Texas that will purchase electricity at wholesale prices and supply its own stores. This division will save the retail behemoth over $15 million per year, all of which flows right to the bottom line.

Texas electricity suppliers could be facing some stiff competition if Wal-Mart focuses on expanding its footprint into the energy markets. Companies like American Electric Power Company, Inc. (NYSE:AEP), that have a large presence in the state could see even more pressure on margins. Currently, Texas’ deregulated electricity market allows utilities to compete against each other, which increases pressure on margins.

American Electric Power has nearly 40% of its service territory in Texas, and a competitor the size of Wal-Mart could really decrease American Electric’s operating margin. Currently, American Electric has operating margins of 17.5%, slightly lower than the industry average of 18.5%. American Electric also pays out 74.1% of earnings to support a 4% dividend. Utilities in the south could see increasing competition from micro projects that generate electricity from rooftops where sun is plentiful and the cost per watt of electricity keeps dropping.

Wal-Mart’s core competency isn’t in the electricity business, but it has been known to expand its reach into areas like auto-repair. If Wal-Mart Stores, Inc. (NYSE:WMT) does venture into the retail electricity market, it would have to do it in a big way to move the revenue needle.

Foolish bottom line

Wal-Mart is a giant retailer with a state of the art supply chain and a huge distribution network. Wal-Mart’s expansion into renewable and the electric wholesale market will help it reduce costs in its stores and ultimately help consumers save money. Wal-Mart could even one day sell excess solar power that it generates to electric companies and create yet another revenue stream.

The article This Company Is Capitalizing on Sunny Days originally appeared on Fool.com and is written by Wes Patoka.

Wes is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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