A DCF Valuation Of Wal-Mart (WMT)
Last week Wal-Mart announced solid June sales numbers. WMT is trading toward the top of the stock’s 52-week range. We decided to have a look at some projected financial numbers using our on-line valuation tool.
WMT Valuation
Wal-Mart grew revenues from US$284.3 billion in 2005 to US$378.8 billion in 2008 – a 10% compound annual growth rate. Our assumptions of revenues for the next three years are US$405.0 billion in 2009 growing to US$465.0 billion in 2011 – a 7% compound annual growth rate. We have projected EBITDA margins to be flat at 7.5%. We have used a terminal growth rate of 3.5%. We calculated this terminal growth rate based on year three growth of 6.9% dropping to a 3% stable growth rate by year 10. We used a terminal capital expenditure number of US$14.5 billion. We have used a WACC (discount rate) of 8%.
Our analysis incorporates the cash and debt on the Wal-Mart balance sheet – Valuecruncher calculates a net debt number.
Our analysis gives a valuation of US$51.71 which is 8.0% below the current share price of US$56.29.
Based on our analysis the current valuation looks slightly overvalued. Play with our assumptions – what does your analysis say?
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