Wal-Mart Stores, Inc. (WMT)’s Massive Strengths and Weaknesses

Wal-Mart Stores, Inc. (NYSE:WMT) has forever been a market leader, and a great company to have your money in. As an investor, I’m going to dig deeper and try to get an understanding of the inner workings of the company, and its Strengths, Weaknesses, Opportunties, and Threats, or what is commonly known as a SWOT analysis.

Wal-Mart (WMT)Strengths

A 2.3% dividend yield puts the stock well ahead on the yield curve than a 10-year treasury. The company raised its dividend by18% not long ago.

For the most recent quarter, and I quote: “gross margin was 24.9%, 10 basis points better than the prior-year quarter. Operating margin was 6.7%, 10 basis points worse than the prior-year quarter. Net margin was 4.4%, 20 basis points better than the prior-year quarter.” …. The fact that operating margins were worse is not necessarily a positive indication about the efficiency with which the company was run, but that is just one possible explanation, and it’s not a large dip. As the other numbers are better, I’m inclined to give this a pass.

Wal-Mart Stores, Inc. (NYSE:WMT) has one of the best track records on the market as a stock, being one of the best equities of all time. It has underperformed the S+P 500 over the last 10 years, but it has performed well the last year.

One huge strength Wal-Mart has is that it owns much of the property its stores lie on. Many of these properties were purchased years ago, and are not marked up on the balance sheet to necessarily reflect their current value.

Warren Buffett of Berkshire Hathaway Inc. (NYSE:BRK.B) is a big investor. This should at least somewhat ease concerns from retail investors about the long-run viability of the company. Berkshre doesn’t make many losing investments.

Although Amazon.com, Inc. (NASDAQ:AMZN) is working to make same-day delivery an option, it isn’t there yet. At Walmart.com, you can pick out what you want to buy online, go to your local Wal-Mart Stores, Inc. (NYSE:WMT), and pay for it in cash. This helps keep those without credit cards shopping at the retail behometh, even online. That’s a definite advantage over Amazon.

Over the years, Wal-Mart has created one of the most efficient distribution networks in retail, which helps enable it to be the “low cost leader.”

Wal-Mart enjoys tremendous negotiating leverage over companies it does business with, due to its mammoth size and volume.

Weaknesses

Walmart’s online site does not offer the same selection as many stores.

According to this Motley Fool column, “The company expects to earn $1.11 to $1.16 per share, which is up only slightly from a year ago and below the $1.18 in earnings per share analysts are currently expecting.” This correlates to weak February sales described below. Earnings are to be reported May 16th.

Opportunties

Wal-Mart continues to expand internationally, which will be a key to raising earnings in the future.

The company cefinitely has room to grow online and strengthen its web business. Having all those physical locations is a huge asset here.

One thing that goes unnoticed is Wal-Mart’s desire to become a bank. Of course, all the “Too Big To Fail” banks employ massive numbers of lobbyists to prevent this from taking place (perhaps they fear for their overdraft fees?) but with the fairly recent introduction of financial services in Wal-Mart’s stores, this is a real possibility which I haven’t heard mentioned recently. Wal-Mart would likely cut the costs of banking (as is its model for business) and undoubtably find ways to market to the working poor and those without bank acounts, while also taking away a tremendous amount of business from other banks. Shareholders could be well-rewarded.

Threats

According to this Motley Fool column, sales for the start of February were a nightmare. This is thought to be a result of higher gas prices and the payroll tax adjusting upwards squeezing low income investors.

If Congress can’t agree on a budget to reverse the sequester, government cuts would likely have a disproportionate effect on the poor, much like analysts’ thoughts on the recent payroll tax readjustment.

Wal-Mart has a lot of competition at the low end of the market with Family Dollar Stores, Inc. (NYSE:FDO) and Target Corporation (NYSE:TGT), and it faces an increasing threat from Amazon online.

Amazon is taking over the online of world of retail. Despite being a Wal-Mart shareholder, I fulfill my orders through Amazon.com by a 4-1 ratio. And that’s as someone with a vested (albeit tiny) interest in shopping at walmart.com. Amazon owns the superiror brand name online.

Bottom Line

I’m long Wal-Mart, and have been for years. It might be a little dicey to get in at current level, but I’m not selling, either. And in the long term, it’s definitely a good buy. Just ask Warren Buffett.

The article Wal-Mart’s Massive Strengths and Weaknesses originally appeared on Fool.com and is written by Margie Nemcick-Cruz.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!