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.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

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!