In the latest quarter, Wal-Mart (NYSE:) posted earnings of $1.18 per share, which beat the Street estimates by one penny. However, the revenues were somewhat light at $113.53 billion. The consensus estimate was for $115.8 billion. On the news, the shares of Wal-Mart are off so far today by almost 3.5% to $71.85.
Despite all this, the overall share-price gains for 2012 are still impressive, coming to over 20%. It certainly helps that the company has been posting decent growth in comparable-store growth (sales at stores open a year or more).
But can the stock price be vulnerable right now? Or is today’s dip an opportunity? To see, here’s a look at the pros and cons:
Pros
Massive Scale. Wal-Mart is the world’s largest retailer, with over 10,100 locations in 27 countries. The company serves customers more than 200 million times a week.
E-commerce. This is a huge opportunity for Wal-Mart. Over the years, it has been investing heavily in its digital business. For example, the company has a system that allows customers to buy online and pick up those purchases at retail locations. It also has thriving websites in places like Brazil and Canada.
Strong Financials. Wal-Mart is a cash machine. In the first six months of 2012, free cash flows came to $6.1 billion. This compares to $4 billion during the same period a year ago.
A key has been Wal-Mart’s continued focus on cost-cutting and productivity improvements.
Cons
Macroeconomy. Many of Wal-Mart’s customers live paycheck-to-paycheck. Unfortunately, job growth remains anemic, and food prices likely rise because of the Midwest drought.
The slowing in global markets is also having an impact on Wal-Mart. In fact, the company plans to pull back on its expansion plans.
Competition. Major players like Target (NYSE:) and Costco (Nasdaq:) continue to put pressure on Wal-Mart. But it also faces fierce competition from the dollar stores like Family Dollar
(NYSE:), Dollar General (NYSE:) and Dollar Tree (NASDAQ:). And yes, e-commerce operators like Amazon (Nasdaq:) represent another big threat.
Legal. The U.S. government is investigating Wal-Mart on allegations of bribery, tax evasion and money laundering in its Mexican operations. It’s too early to get a sense of the impact, but the company’s reputation has already suffered. The investigation will also likely stunt Wal-Mart’s growth in Mexico.
Verdict
For the past year, Wal-Mart has posted solid results. But the latest quarterly report is ominous. The macroeconomy appears to be taking a toll — and it’s unclear how long this will last.
At the same time, Wal-Mart’s stock isn’t cheap, with a price-to-earnings ratio of 16. The dividend is also a somewhat meager at 2.1%. In light of all this, the cons outweigh the pros on the stock for now.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of and Follow him on Twitter at . As of this writing, he did not own a position in any of the aforementioned securities.
