Below is a research report issued today (1/26/99) by Prudential Securities:
_____________________________________________________________
WMT: RAISING 1999 EPS AND PRICE TARGET TO $92 PER SHARE
Subject: Wal-Mart (WMT-82)--NYSE COM, EPS, OTH OPINION Current: ACCUMULATEAnalysts: Wayne Hood & Stephen M. Long (404) 842-9160
Risk: LOW 12-Month Target Price: $92
Div.: $0.31 Yield: 0.4% Shares: 2,246 mil. 52-Wk. Range: 85-38
____
MORE CONFIDENCE IN SUSTAINABILITY OF COMP-STORE SALES TREND INTO 1999 We are increasing our 1999 (ending January 2000) estimate to $2.25 from $2.18 per share and our 12-month price objective to $92 per share from $88 per share. Despite difficult sales comparisons, the company continues to exceed internal planned growth rates by a meaningful amount. The recent sales trends coupled with expansion of food into the discount stores in 1999 causes us to increase our 1999 comp-store sales estimate for the discount stores and supercenters to 6.5%-7.0% from 5.0% compared with an estimated 8.5% increase in 1998 (ending January 1999). For example, January comp-store sales in the discount stores were planned to increase about 5% from last year, but month-to-date they are up close to 9%. Comp-store sales for Sam's were planned to increase about 5%-7% in January and are up about 8% month-to-date. The strong January trend follows above planned growth in November and December where consolidated comp-store sales were up 7.6% and 9.4%, respectively. Wal-Mart's management has discussed their plan to increase food sales by growing Supercenters and opening neighborhood stores. While they have also discussed opening pantry formats and have been watching Kmart's and Target's pantry versions, its only been a test. It now appears Wal-Mart's version of the pantry format is ready to leave the launch pad. By mid-year 1999, milk, bread and eggs will be added to every discount store in the chain. According to management, sales in the food departments have risen by 10%-15% following the addition. Moreover, comp-store sales for the test stores have risen about 1%-2% following the addition. Interestingly, the department experienced higher gross margin dollars and percent gross margin following the introductions. We would have expected the gross margin could have declined, but the overall mix of the department improved. For stores that are greater than 100,000 square feet about 10,000 square feet will be for pantry items. The company has tested several different prototypes where there is a combination of brands/private brands in the assortment. Interestingly, in stores where they offer only higher margin private brands (Great Value), they have not experienced slower rates of sales growth. However, the stores did experience a higher gross margin. If meaningful to a greater number of stores it will open up a round of debate about how important national brands are when compared with private label merchandise. Prudential Securities Incorporated acts as a specialist that makes a market in the security of Wal-Mart. At any given time, the specialist may have a position, either long or short, in the security, and, as a result of the associated specialist's function as a market maker, such specialist may be on the opposite side of orders executed on the floor of a national securities exchange. Prudential Securities Incorporated (or one of its affiliates) or their officers, directors, analysts, or employees may have positions in securities or commodities referred to herein, and may, as principal or agent, buy and sell such securities or commodities.
____
Ibexx
|
