Wal-Mart shares set new high – again

by The City Wire staff (info@thecitywire.com) 4 views 

Just a few months ago, there were likely few – if any – Wal-Mart observers who would have guessed share prices of the world’s largest retailer would push past the upper $60-range and flirt with $75 by late July.

On Friday (July 27), Wal-Mart Stores Inc. shares (NYSE: WMT) closed at $74.54, up 87 cents, or up more than 54% from its 52-week low. Also on Friday, the shares hit a new 52-week intraday trading high of $74.80. Prior to Friday, the share price ranged from a $48.31 low to a $73.95 high.

Revelations of the bribery scandal first hit April 21 when the New York Times reported a “campaign of bribery” that was allegedly managed by former Wal-Mart de Mexico CEO Eduardo Castro Wright. The bribery schemes allowed Wal-Mart to obtain construction and other permits quicker than its competitors.

Numerous large large institutional shareholders and proxy advisement firms encouraged Wal-Mart shareholders to remove Lee Scott, a Wal-Mart board member and the Wal-Mart CEO during the Mexico issue, and remove Wal-Mart CEO Mike Duke.

However, the outspoken dissenters held only 18.1 million votes — a mere 5.23% of the total outstanding shares.

Also, Wal-Mart shares (NYSE: WMT) hovered around $62 prior to disclosure of the Mexico bribery allegations, but quickly fell below $58 in the days after the news.

But then the company reported a solid first quarter financial performance. First fiscal quarter net income was up more than 9%, and U.S. same store sales up 2.6%. The per share earnings of $1.09 were ahead of the 98 cents in the same quarter of last year, and above Wall Street estimates.

Total revenue for the quarter ended April 30 was $113.018 billion, up 8.5% compared to the same quarter in 2011 — and that was up against a negative foreign currency exchange rate that reduced the top line by about $800 million.

Although the company’s quarterly numbers were solid, growing uncertainty with U.S. and global economic conditions is resulting in more talk of another U.S. recession. In fact, the U.S. Commerce Department reported Friday (July 27) that the gross domestic product (GDP), the value of all goods and services produced, rose at a 1.5% annual rate after a revised 2% gain in the prior quarter. The report also showed household consumption rose at a 1.5% from April through June, down from a 2.4% gain in the prior quarter.

With GDP being revised downward, consumer sentiment falling and concerns about another recession, the markets seem to say that Wal-Mart is better situated to retain and gain customers better than the company did during the recent recession.

“I agree,” replied Scott Alaniz with Boston Mountain Money Management, when asked if the markets believe Wal-Mart is positioned to handle a possible downturn. “Wal-Mart is well situated to retain and gain customers during a slowing economy or recessionary environment.” (Boston Mountain and its clients have positions in Wal-Mart.)

He also said large and small investors are also pushing their money to securities less impacted by negative economic trends.

“The other factor driving Wal-Mart’s price higher is flight-to-safety. With the turmoil in Europe and fears of a slowdown in China, investors are shifting funds towards ‘safer’ stocks – think big companies that make and sell essentials (soap, groceries, etc.) or provide essential services like utilities,” Alaniz noted.

The rising share price also has message boards humming with questions about a stock split. Wal-Mart shares have split only nine times since 1970, with the last split made more than 13 years ago.

Alaniz believes the shares are headed for a split if the price continues to rise, but he would not be pulled into predicting at what price.

“The board will decide the trigger price,” Alaniz said.