Image Source:Mike Mozart, Flickr

As part of an ongoing series, each week we typically conduct an analysis on one of the companies in our screens. This week, however, we will take a look at one of the stocks that is not currently in our screens: Walmart Inc (WMT).

Profile

Walmart serves as the preeminent retailer in the United States, with its strategy predicated on superior operating efficiency and offering the lowest priced goods to consumers to drive robust store traffic and product turnover. Walmart augmented its low-price business strategy by offering a convenient one-stop shopping destination with the opening of its first supercenter in 1988.

Today, Walmart operates over 4,600 stores in the United States (5,200 including Sam’s Club) and over 10,000 stores globally. Walmart generated over $440 billion in domestic namesake sales in fiscal 2024, with Sam’s Club contributing another $86 billion to the company’s top line. Internationally, Walmart generated $115 billion in sales. The retailer serves around 240 million customers globally each week.

Recent Performance

Over the past 12 months, the share price has moved up 44.57%.

Source: Google Finance

Inputs

• Discount rate: 6%
• Terminal growth rate: 1%
• WACC: 6%

Forecasted Free Cash Flows (FCFs)

Terminal Value

• Terminal Value = FCF * (1 + g) / (r – g) = 465.61 billion

Present Value of Terminal Value

• PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 347.93 billion

Present Value of Free Cash Flows

• Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 86.97 billion

Enterprise Value

• Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 434.90 billion

Net Debt

• Net Debt = Total Debt – Total Cash = 52.50 billion

Equity Value

• Equity Value = Enterprise Value – Net Debt = 382.40 billion

Per-Share DCF Value

• Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $47.54

Conclusion

Based on the DCF valuation, the stock appears to be overvalued. The DCF value of $47.54 share is lower than the recent market price of $77.23. The Margin of Safety is -62.46%.

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