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Wmt Valuation Essay

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Summary - Valuing Wal-Mart In utilizing the fundamental data provided by the 2010 Richard Ivey School of Business Foundation article titled Valuing Wal-Mart - 2010, I have made the following conclusions regarding the value of Wal-Mart (WMT) stock as of February 2012. * Utilizing the constant growth dividend discount model (DDM), the value of Wal-Mart’s stock price is $60.20. The most recent closing price of Wal-Mart stock was $53.48. Given this information, the constant growth DDM valuation suggests that the Wal-Mart stock is currently undervalued. * Utilizing the two-stage DDM approach, the value of Wal-Mart’s stock price is $83.95. Similar to the constant growth DDM valuation conclusion, the Wal-Mart stock is currently …show more content…

Through the mid-part of the 80’s and into the early 90’s Wal-Mart had still produced annual earnings growth over 20%. It wasn’t until the early part of the century where Wal-Mart had produced earnings growth in the low teens to single digits. With that as supporting material, Wal-Mart has already experienced it’s growth and transition phases of its business cycle and is more in their maturity stage of their business. As of 2010, Wal-Mart is the largest retailer in the world with more than $400 billion in annual revenues across more than 8,000 stores. It would be. It would not be justifiable to utilize the three-stage dividend approach in valuing such a mature company. Capital Asset Pricing Model (CAPM) Valuations for Wal-Mart CAPM Utilizing the fundamental concepts of the Capital Asset Pricing Model (CAPM), the expected return for Wal-Mart stock is 7.01% [E(R)]. This is a result of a risk-free rate (Rf) of 3.68%, which was the provided 10-year government bond yield to use as a proxy for the risk-free rate. The beta (β ) of Wal-Mart was 0.66 according to the provided Bloomberg beta estimate. Additional data was provided on the U.S. market risk premium [E(RM) – Rf] of 5.05%. In following the general concepts of CAPM, there are some general assumptions: no transaction costs, all assets are publicly traded,

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