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(B)(N) WMT Wal-Mart Stores Incorporated

June 7, 2013

Drama. Wal-Mart Stores Incorporated is the largest retailer in the galaxy, as far as we know, and there is no space so large as not to have a convenient Wal-Mart store in the neighbourhood. What else can they do for us (The Associated Press, June 7, 2013, Wal-Mart plans $15 billion in stock buybacks; celebrity-laden annual meeting draws crowd)?

Walmart. Save Money. Live Better.

Courtesy: Wal-Mart Stores Incorporated

This year’s dividend is anticipated to be $6.2 billion or $0.47 per share per quarter for a current yield of 2.5%. The current stock market value of the company is $250 billion so that the planned $15 billion in stock buybacks will reel in about 200 million shares or 6% of the 3.3 billion common shares outstanding at the current price of $75.

Average daily volumes are about 8 million shares so that 200 million shares will likely be partially bought in the market at the market price, but we would also expect that most of the shares will be bought from the many institutional shareholders, although there are only four with more than 50 million shares and none with more than a 100 million shares, other than the family-owned trust, Wal-Mart Enterprises LLC, which owns 1.6 billion shares or nearly half the common shares outstanding, and might sell some pro rata as the market takes up its share.

We would think, however, that no large shareholder will tender their shares until the stock price begins to rise; after all, $15 billion buys a lot more shares at $50 than it does at $75 and Wal-Mart began a similar program of $15 billion in share buybacks in 2011 which is nearly done now (ibid, The Associated Press) and we can see that the stock price – surprisingly – is up +50% since then (please see Exhibit 1 below).

Fayetteville, Arkansas June 7, 2013.

Nor is $15 billion just “pocket-change” for the behemoth company; last year’s sales were $469 billion and left a net income, after taxes, of $17 billion (4% of sales) and there is a current shortfall of ($12 billion) between the current assets and current liabilities with inventories of $44 billion and receivables of $7 billion.

Nor does the store not have its problems, even in America. With over 2 million employees, one would think that the weekly payroll and benefits would approach $2 billion and that the suppliers will wait as necessary (current liabilities $72 billion).

Our estimate of the downside volatility in the stock price is just minus ($3.50) so that we would not be surprised by any price between the current $75 and $72 or $78 and we can afford the stop/loss at $72.

Exhibit 1: (B)(N) WMT Wal-Mart Stores Incorporated – Risk Price Chart

(B)(N) WMT Wal-Mart Stores Incorporated

(B)(N) WMT Wal-Mart Stores Incorporated

Wal-Mart Stores Incorporated operates retail stores in various formats under 69 banners. Its operations comprise three reportable business segments: Walmart U.S., Walmart International and Sam’s Club.

(Please Click on the Chart to make it larger if required.)

From the Company: Wal-Mart Stores Incorporated operates retail stores in various formats worldwide. The company operates in three segments: Walmart U.S., Walmart International, and Sam’s Club. It operates retail stores, restaurants, discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, apparel stores, Sam’s Clubs, neighborhood markets, and other small formats, as well as walmart.com; and samsclub.com. The company’s stores offer meat, produce, deli, bakery, dairy, frozen foods, alcoholic and nonalcoholic beverages, and floral and dry grocery; health and beauty aids, baby products, household chemicals, paper goods, and pet supplies; and electronics, toys, cameras and supplies, photo processing services, cellular phones, cellular service plan contracts and prepaid service, movies, music, video games, and books. Its stores also provide stationery, automotive accessories, hardware and paint, sporting goods, fabrics and crafts, and seasonal merchandise; pharmacy and optical services, and over-the-counter drugs; shoes, jewelry, accessories, and apparel for women, girls, men, boys, and infants; and home furnishings, housewares and small appliances, bedding, home décor, outdoor living, and horticulture products. In addition, the company’s stores offer tobacco, tools and power equipment, office supplies, office and home furniture, grills, gardening products, toys, seasonal items, mattresses, and small appliances; and wireless, software, video games, movies, and music products, as well as operate gasoline stations, and tire and battery centers. Further, it operates banks that provide consumer financing programs; and offers financial services and related products, including money orders, prepaid cards, wire transfers, check cashing, and bill payment. As of February 21, 2013, the company operated approximately 10,773 retail units under 69 banners in 27 countries. Wal-Mart Stores Incorporated was founded in 1945, has 2.2 million employees, and is based in Bentonville, Arkansas.

The Price of Risk

The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2009) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks. Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.

Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory.

To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 2013.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™“
Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.Disclaimer Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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