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Wal-Mart Stores (WMT Free Wal-Mart Stores) originated as a concept by company founder Sam Walton in the 1960s. The objective was to keep sales prices lower than the competition in an effort to achieve higher sales volumes. The first location was opened in Arkansas in 1962. By 1967, there were 24 stores statewide with net sales of $126 million. In 1968, a push into new states, namely Missouri and Oklahoma, set the ball rolling for the ubiquitous retail titan that exists today.  Presently, WMT is the world’s largest retail chain boasting 3,465 supercenters, 442 discount stores, 655 Sam’s Clubs, and 667 Neighborhood Markets in the United States. An additional 6,300 foreign stores are open in Latin America, Asia, Canada, and the United Kingdom.

The stock soared to an all-time high of $91 a share in 2015, but since then, there has been a reversal of fortune which saw the equity dip as low as $60 this year. The quotation has since recovered to north of $73. Using the latest Value Line report, we will discuss for which types of investors WMT is best suited.

Using the VL Page_Quarterly Revenues BoxTaking a look at the Quarterly Sales Box that is on the lower left-hand side of the page, it is easy to see that Wal-Mart’s revenues are sliding on a year-over-year basis. After peaking in 2014 at over $485 billion, the top line decreased to $482 billion in 2015. And, our estimate for 2016 calls for a flat showing. This phenomenon is troubling, as market dynamics of late are slanted in the company’s favor: low unemployment, interest rates, inflation, and gas prices. So, what exactly is the problem here? For starters, the retail space in general is suffering from a shift in consumer tastes to online shopping. We see this most evident in shopping malls, but Wal-Mart is not immune to the trend. In the Commentary section of the page, Value Line’s analyst Kevin Downing states that “e-commerce is a priority for WMT. In the most recent quarter, e-commerce sales were up 7%, a solid figure but one that pales in comparison to the 25% growth that Amazon.com (AMZN) realized over the same period”. The competition from this e-tailer is very real, and the new Wal-Mart Pay option is a step in the right direction for WMT. This app allows shoppers to buy goods via their smartphones. Still, Amazon’s simplicity and ease of use gives it a leg up on its peers.

Also, as mentioned, Wal-Mart maintains a huge physical store presence, which bloats its cost structure. Brick-and-mortar concerns have been slow to trim their store counts, perhaps believing that the push online will not persevere. These elevated costs, coupled with WMT’s leadership position in raising the wages of its full-time employees, has not been beneficial to the bottom line this year. A glance at the Earnings Per Share Box paints a picture for 2016 that is not as rosy as the past. Earnings peaked at $5.11 a share in 2013 and have been on the decline since. Absorbing higher expenses has certainly pinched profits, but there is more at play than just that. WMT has clearly fallen out of favor as a shopping destination for at least a portion of the population, likely the younger, tech-savvy contingent. Our forecast has the earnings needle falling to $4.20 a share this year, which would be the lowest tally since 2010 when the company was coming out of the most recent recession.

Most recently, the company made a wise move in its bid to compete in the digital commerce world. Wal-Mart agreed to purchase Jet.com for $3 Using the VL Page_Historical Arraybillion. Jet.com is an online-only shopping site that has been live for a little over a year. This acquisition will widen the types of consumers that it targets beyond its core base and the hope is that significant cross-selling opportunities will blossom. Some are taking aim at the price tag to poke holes in the deal, but Wal-Mart is well-heeled and this venture makes sense on many levels. Too, looking at the Current Position Box at the middle-left of our page, we see that WMT had close to $7.6 billion in cash on hand as of April 30th. Add to that the ample cash flow that this company generates on an annual basis (a peek at our Array in the middle of the page shows cash-flow per share pegged at $7.20 this year), and we do not think $3 billion is going to make or break this behemoth. More supporting evidence in this case can be found in the Capital Structure Box, just above the Current Position, where it is denoted that Wal-Mart has a debt to total capital ratio of 34%, an extremely manageable level for a company with this type of scale and breadth.

Using the VL Page_Current Position BoxEven before the Jet.com pact, we estimated that WMT would return to growth mode next year. Progress managing inventory better and making sure shelves are stocked efficiently has been made in 2016. Too, more assistance than ever before is available to shoppers, which should keep the lines moving. But, the investment community will want to be rewarded for weathering this current downturn. This is where this stock’s income component comes into play. Below the Earnings Per Share Box, subscribers will find the Quarterly Dividends Paid Box. To kick off 2016, the quarterly payout was upped by a penny, to an even $0.50 a share. That level equates to a $2.00 a share dividend for 2016, an all-time high for that metric. Too, using the Recent Price of $73.66 located at the middle of the Top Label of our report, the math works out to a yield of 2.7%, handsomely above the Value Line median at this time. Such a solid yield is amplified by Wal-Mart’s label as a “safe haven” selection, and justifies an investment at this juncture for those seeking income and some appreciation out to 2019-2021. The stock receives our highest score (100 out of 100) for Price Stability and Earnings Predictability, two investment metrics that can be found in the bottom right-hand corner of the Value Line page.  

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.