Morgan Stanley raised its target for WMT to $39; also issued "strong buy" on KMart and Dayton-Hudson
MORGAN STANLEY DEAN WITTER NEW YORK MORNING MEETING (I/MKT)
Comments for Monday, 7/07/97, 9:30 A.M. EDT: Part 1
Wal-Mart(WMT) ($35): OUTPERFORM
Bruce Missett (212) 761-6660
We are maintaining our Outperform rating on WMT and raising our price
target yet again, to $39 from $35, based on our continued belief that
the potential for steady to improved momentum makes WMT a stock that
large-cap investors should own. A price target of $39 assumes WMT
shares can sustain their current multiple of 22-23 times 12 month
forward earnings. At $39, the shares would be trading at 22.7 times
our 1998 EPS estimate of $1.72, a 15-20% premium to the market and
1.7 times our five-year projected growth rate of 13%.
We believe that WMT is awarded a premium to the market and its growth
rate due to several factors including: its unassailable position in
the discount store sector, the increasing benefits of balance sheet
and financial management (with inventory reduction at the top of the
list), and a re-establishment of consistent quarterly performance.
Additionally, WMT's increased mix of consumables with the rapid growth
of supercenters could provide the same defensive characteristics that
add to the premium valuation of the best supermarkets (both
Albertson's and Ahold trade at a PE/ Projected Five-Year Growth Rates
of about 2 times).
For the quarter, we are looking for EPS of $0.35, 13.6% growth over
$0.31 in 2Q96. We expect revenues of $28.5 billion, up 11.5%, a
slight 7 basis point decline in the gross margin and a slight 4 basis
point improvement in SG&A as a percentage of sales. |
