Santa Clara University
Leavey School of Business
Analysis of Financial Investments:
Retail’s Top Performer vs. Retail’s Top Disruptor
Submitted By:
Azmeena Zaveri
Campbell Oreglia
Tommy Baldacci
Submitted on:
November 9, 2015
The retail industry is vast in nature and extremely competitive. The variables that affect
the success of a retailer can depend upon pricing, convenience, variety, quality, and service. The
companies advertise and discount on extreme levels to try and chip away at each other’s share of
the market in the enormous industry. Certain top performers take up ranks and others fall behind.
In many ways it can be assimilated to Game of Thrones with each company, being a metaphor to
each royal family, striving for the throne. As each fight to become the number one in sales there
is one that has conquered this battle and sustained being the top performer, or one would say
king, and that is Walmart. There is a company that started small and has over the years grown in
numbers, building the loyalty of the people. This company is not your conventional retailer. This
company is one that is not concerned with the throne. Amazon, analogous to Daenerys
Targaryen, says, “They’re all just spokes on a wheel. This one’s on top, then that one’s on top,
and on and on it spins, crushing those on the ground. I’m not going to stop the wheel. I’m going
to break the wheel.”1 Over the past decade the store closings and downsizings of retail giants
such as Radio Shack, Sears, Target, and Office Depot has made it clear the direction consumers
are going. Amazon is breaking the wheel and the companies that do not adjust to the internet age
will be the ones that get crushed. Can Walmart pivot its company towards becoming an ecommerce giant and sustain holding the throne or will Amazon transform its growing territory
into a highly profitable business and become the new King?
Since 2005, Amazon’s revenue growth has been in double digits. In 2005, the company
had $8.4 billion in revenue, which increased 10 times to $88.9 billion in 2014 and it has already
crossed $100 billion in the third quarter of 20152. The average ten year revenue growth is 29%
1
“Hardhome.” Game of Thrones. HBO. West, San Francisco. May 2015. Television
"AMZN Key Statistics | Amazon.com, Inc. Stock - Yahoo! Finance." Yahoo! Finance. Accessed October 30,
2015. http://finance.yahoo.com/q/ks?s=AMZN+Key+Statistics.
2
1
3
but surprisingly we do not see the growth in revenue being translated much into profitability.
The company has incurred net losses in two out of the last three years and the ten year average
net margin hovers around 2.098%. However, between November 2014 and November 2015
Amazon has experienced a 121% return on the stock price, bringing the current price into the
$650 range. Much of this rise can be attributed to the company’s recent diversification efforts.
Over the past quarter alone, revenue from Amazon Web Services (AWS) has grown by 49%
annual rate, and made up $521 million of Amazon’s operating income for the first three quarters
of 20154. During the current market Amazon is leading in the cloud based services, making up
29% of the market share with Microsoft trailing behind them at 12% market share. AWS
operating margin also increased over the past quarter from 8% to 25%, explaining the large jump
in profit and stock price5. If we look at the overall performance during the nine months ending
September 2015, the company has reported $5.4 billion in AWS revenue and $1.1 billion in
profit that is a 70% rise in revenue and 180.23% rise in profit over last year6. Sales in the other
two segments namely North America and International market have increased by 26% and 3%
respectively (Exhibit 1).
We see that AWS is still a small portion of the overall sales mix but it has been able to
change the competition in favor of Amazon.The highest market share in the cloud business
indicates that the company had already anticipated it to be the next growth segment and started
investing in the infrastructure in the form of huge capital expenditures. Even in years when the
3
"Amazon.com Inc." Growth, Profitability, and Financial Ratios for (AMZN) from Morningstar.com. Accessed
November 9, 2015. http://financials.morningstar.com/ratios/r.html?t=AMZN®ion=usa&culture=en-US.
4
Cohan, Peter. "Heads In The Cloud: Amazon And Microsoft Up, EMC Not." Forbes. October 23, 2015. Accessed
November 4, 2015. http://www.forbes.com/sites/petercohan/2015/10/23/heads-in-the-cloud-amazon-and-microsoftup-emc-not/.
5
Cohan, Peter. "Heads In The Cloud: Amazon And Microsoft Up, EMC Not." Forbes. October 23, 2015. Accessed
November 4, 2015. http://www.forbes.com/sites/petercohan/2015/10/23/heads-in-the-cloud-amazon-and-microsoftup-emc-not/.
6
3rd Quarter 2015 Financial Statement- Amazon.com Inc.
2
company has made profits, it has not passed any of those to its shareholders and rather invested
back in the business. Amazon is known for its higher capital expenditure, which has grown at
45% on average in the past 10 years7. Despite high capital expenditures, Amazon has been
successfully able to maintain higher positive free cash flows, which have grown almost every
year (Exhibit 2).
Analysts expect Amazon to slow down investment in capital expenditure after a couple of
years as by then the company will be able to build up its infrastructure enough to support the
growth of Amazon Prime and Web Services (AWS)8. If Amazon squeezes its capital expenditure
and continues to improve operating cash flows, its free cash flows is expected to rise even more9.
However, with growing direct competition in each segment, especially in AWS and online retail,
we believe that the future may turn bleak for Amazon. Although Amazon has seen profits from
their diversification efforts, they have stiff competition in all the areas that they have invested in.
E-commerce has been a growing market for years and is looking like the future of retail, which is
why many retail giants have been spending a lot of capital expenditure in order to expand their
internet presence. It is true that Amazon has the largest market share of e-commerce in the U.S.,
but they have every other retail company coming up on their tail. Amazon has made little
barriers to entry when it comes to the e-commerce market, due to their weak supplier
relationship. As more companies enter the market Amazon will be forced to compete with
retailers who have much more extensive supply chains.
7
"Amazon.com Inc." Growth, Profitability, and Financial Ratios for (AMZN) from Morningstar.com. Accessed
November 9, 2015. http://financials.morningstar.com/ratios/r.html?t=AMZN®ion=usa&culture=en-US
8
"Amazon: You Should Own This Name; It's Worth $610." Seeking Alpha. December 21, 2014. Accessed
November 9, 2015. http://seekingalpha.com/article/3523796-amazon-you-should-own-this-name-its-worth-610.
9
"Amazon: You Should Own This Name; It's Worth $610." Seeking Alpha. December 21, 2014. Accessed
November 9, 2015. http://seekingalpha.com/article/3523796-amazon-you-should-own-this-name-its-worth-610.
3
In addition to competing with American retailers, Amazon also has to compete with
AliBaba in the coming years as they are actively trying to enter the U.S. market. As of now
Alibaba has a strong presence in Asia with a e-commerce market share of 80% in China10. The
main advantage Alibaba has over Amazon is their very low operation costs. Alibaba has an
operating margin of 30%, which is phenomenal compared to Amazon’s 1.5%11.
E-commerce is not the only division of Amazon’s business that is vulnerable to high
competition and external threats. Currently, Amazon has a 29% market share of the cloud storage
industry with sales growing at a 49% rate, but this is only marginal growth in comparison to
Microsoft’s 96% growth and Google's 74% growth over the same period12. Companies like
Microsoft, Google and IBM are focusing heavily on expanding their cloud and server business,
and could surpass Amazon.
In order to fight rising competition, Amazon has again come up with a unique strategy.
On November 3rd 2015, Amazon unexpectedly opened a bookstore in Seattle Washington. The
bookstore is very small with only 5,000 titles, for customers to come look at the books before
they order it online. They are hoping this investment will be a success and are planning on
opening more bookstores in the future13. Moreover, the company has recently released their new
tablet called the Fire tablet, at a much lower price than competing tablets. Unfortunately the Fire
Tablets have not had the public reaction that Amazon hoped for and have been receiving mixed
10
Team, Trefis. "Why Alibaba Can Expand Faster Than Amazon?" Forbes. October 13, 2015. Accessed November
8, 2015. http://www.forbes.com/sites/greatspeculations/2015/10/13/why-alibaba-can-expand-faster-than-amazon/.
11
Team, Trefis. "Is Amazon Focused on Margins ?" Forbes. October 2, 2015. Accessed November 1, 2015.
http://www.forbes.com/sites/greatspeculations/2015/10/02/is-amazon-focused-on-margins/.
12
Cohan, Peter. "Heads In The Cloud: Amazon And Microsoft Up, EMC Not." Forbes. October 23, 2015. Accessed
November 4, 2015. http://www.forbes.com/sites/petercohan/2015/10/23/heads-in-the-cloud-amazon-and-microsoftup-emc-not/.
13
Streitfeld, David. "Amazon Adds New Perks for Workers and Opens a Bookstore." The New York Times.
November 2, 2015. Accessed November 9, 2015. http://www.nytimes.com/2015/11/03/technology/amazon-addsnew-perks-for-workers-and-opens-a-bookstore.html?_r=0.
4
reviews14. Rapidly increasing market capitalization and growing revenues indicate that
Amazon’s diversification business strategy is proving to be successful right now but their lack of
focus in one industry could lead them to fall behind.
Strangely, increasing competition and uncertain outcomes of the untested unique
strategies of Amazon do not reflect in the current stock price, which keeps on rising every
minute. Currently, low EPS and rising stock price has raised many questions on the company’s
P/E ratio of 951.1x (11/5/2015) and the stock is seemed to be rising more on momentum and
apparently some miscalculation. Within the investment community there has been a growing
concern over the way Amazon defines its free cash flow and its potential impact on equity
valuation. with rising Capital expenditure, Amazon is becoming more of a capital intensive
company and it has believed in financing its assets through capitalized lease commitments.
However, the interplay between company’s FCF definition and GAAP, leaves the cost of leases
unaccounted for15. Despite the known contradiction, we tried calculating the growth rate for
future free cash flows that amazon should achieve to justify its current stock price (Exhibit 3).
Our analysis conclude that in order for the stock to obtain a fair value of $625.9016 per
share, Amazon’s free cash flows need to grow at an annual average rate of 47.96% for the next
five years and 2.5% beyond 2020 in perpetuity and with intensely growing competition, this
seems hard to achieve. In addition to fierce competition, if there is a slow down in the global
economy in general and the US economy in particular, Amazon might experience lower
14
Moorhead, Patrick. "Read The Fine Print Before Buying The $50 Amazon Fire Tablet." Forbes. September 17,
2015. Accessed November 1, 2015. http://www.forbes.com/sites/patrickmoorhead/2015/09/17/read-the-fine-printbefore-buying-the-50-amazon-fire-tablet/.
15
Doyle, Tom. "Amazon: Free Cash Flow Not What The Bulls Purport It To Be." NASDAQ.com. December 10,
2014. Accessed November 1, 2015. http://www.nasdaq.com/article/amazon-free-cash-flow-not-what-the-bullspurport-it-to-be-cm421720.
16
closing stock price on 30th October 2015- Google Finance
5
operating profits or even losses which may result in Amazon’s stock price to decrease and if that
happens, anyone who buys the stock today may get a hard dent in their returns in the long run.
2014 Fortune 500 list’s largest company by revenue, Walmart, is falling victim to
Amazon taking portions of its market share due to the consumer trend of switching to online
shopping. Speculation of a world without any retail stores is leaving many analysts extremely
critical of Walmart. Despite consistent dividends, Walmart has lost 33% of market value over the
past year. Currently, the market is quite skeptical about the company’s future and with the
management’s guidance report issued on 14th October, it seems that market has lost faith in
Walmart’s ability to fight the rising e-commerce competition. If we look at the historical
numbers, Walmart’s revenue growth has been declining over the last 10 years. The revenue grew
at the rate of 10% in 2006-07 and this trend has now come down to mere 1.96% in 2014-1517.
“‘Retail history is very clear,’ Doug McMillon, the Walmart chief executive, said last
week. ‘Those that are unwilling or unable to change go away.’”18 In the eyes of Walmart’s CEO,
Doug McMillon, change is constantly necessary in order to stay competitive in any industry,
especially one as competitive as the retail industry. Some simple facts that have been obtained
from Walmart’s own website show the magnitude of how large of a company they truly are.
● Over 260 million customers worldwide shop at a Walmart retail store or on Walmart.com
each week
● 2.2 million associates employed through Walmart worldwide
17
"Wal-Mart Stores Inc." Growth, Profitability, and Financial Ratios for (WMT) from Morningstar.com. Accessed
November 9, 2015. http://financials.morningstar.com/ratios/r.html?t=WMT®ion=USA&culture=en_US.
18
"Walmart Plays Catch-Up With Amazon." The New York Times. October 22, 2015. Accessed November 9, 2015.
http://www.nytimes.com/2015/10/23/business/walmart-plays-catch-up-with-amazon.html?ref=topics&_r=0.
6
● 2015 fiscal year sales of $424 billion through Walmart and $58 billion through Sam’s
Club
● 11,500 retail units in 28 different countries19
The scale and magnitude of these numbers do not leave room for speculation or
uncertainty of how large of a titan Walmart is. The major question is after over 50 years of
business can they continue to adapt in order to stay the giant they have become. In order to
answer this question it is important to see how they have adjusted in the past when other major
competitors emerged in the market.
In 1976 a company named Costco emerged into the retail industry as a membership based
wholesale warehouse superstore with prices that were extremely competitive. By the mid 80s
there were 22 Costco Superstores opened nationwide. As it seemed a large chunk of Walmart’s
market share would be chewed into if they did not find a way to adjust. In 1988 Sam’s Club, a
line of membership based superstores, was created by Walmart in order to directly compete with
Costco. Today there are 650 Sam’s Club warehouses creating net sales of $58 billion.
Since Walmart’s inception there have been a multitude of different grocery stores that
have opened such as: Safeway, Kroger’s, and Trader Joe’s. These companies were much smaller
than Walmart and could be placed strategically in order to attract customers in high density
urban areas. In order to stay competitive in the grocery sector in 1998 Walmart opened a new set
of stores called neighborhood markets. They are a fifth the size of a normal Walmart superstore
and specialize in grocery and pharmaceutical items. With much of the U.S. population moving
towards high density urban areas the adjustment of Walmart to downsize in order to adapt is
19
"Walmart Corporate & Financial Facts." Walmart Corporate & Financial Facts. June 1, 2015. Accessed November
9, 2015. http://corporate.walmart.com/_news_/walmart-facts/corporate-financial-fact-sheet.
7
critical. Earlier in 2015 the 500th Walmart Neighborhood Market was opened and sales were up
7.3 percent in quarter 2 of 201520 21
At the current state of Walmart, the largest obstacle the company is working through is
the trend of consumers to shop online. Amazon is the largest internet retailer with Walmart’s
internet sales being a small fraction of that of Amazon’s. “In 2014, Wal-Mart's online sales
were $12.2 billion compared to Amazon's $89 billion.”22 Although Walmart’s online sales are
only a fraction of Amazon’s they still are extremely competitive with other online retailers.
According to InternetRetailer.com Walmart is still 3rd on their list of Internet Retailer 2015 Top
500 Guide with sales up 16% in Q2 of 2015.23
Although Amazon is currently the top internet retailer there is always steady price
competition and other factors that allow room for other companies to share market space with
Amazon. Walmart plans to invest $190 million and $295 million on e-commerce this year24 and
is creating an internet shipping pass that will provide three day shipping and directly challenge
Amazon Prime.
Amazon and Walmart are at the forefront of a shipping revolution: switching to drone
delivery. When discussion of the topic was brought up to Brian Nick, spokesman for Walmart,
he pointed out that, "Walmart has one of the largest and most efficient supply chains in the
"500th Walmart Neighborhood Market in the United States Opens in Springfield." 500th Walmart Neighborhood
Market in the United States Opens in Springfield. Accessed November 9, 2015.
http://corporate.walmart.com/_news_/news-archive/2015/01/05/500th-walmart-neighborhood-market-in-the-unitedstates-opens-in-springfield.
21
"Walmart Earnings Miss, But ECommerce Sales Up | PYMNTS.com." PYMNTScom. August 18, 2015.
Accessed November 9, 2015. http://www.pymnts.com/in-depth/2015/walmart-posts-slight-sales-growth-withecommerce-boost/.
22
D'Onfro, Jillian. "Wal-Mart Is Losing the War against Amazon." Business Insider. July 25, 2015. Accessed
November 9, 2015. http://www.businessinsider.com/wal-mart-ecommerce-vs-amazon-2015-7.
23
Guy, Sandra. "Wal-Mart Says Heavy E-commerce Investments Put a Crimp on Earnings." Wal-Mart Says Heavy
E-commerce Investments Put a Crimp on Earnings. August 18, 2015. Accessed November 9, 2015.
https://www.internetretailer.com/2015/08/18/wal-mart-says-heavy-e-commerce-investments-crimped-earnings.
24
Guy, Sandra. "Wal-Mart Says Heavy E-commerce Investments Put a Crimp on Earnings." Wal-Mart Says Heavy
E-commerce Investments Put a Crimp on Earnings. August 18, 2015. Accessed November 9, 2015.
https://www.internetretailer.com/2015/08/18/wal-mart-says-heavy-e-commerce-investments-crimped-earnings.
20
8
world, and our initial tests are targeted at helping to manage that vast network of distribution
centers, online fulfillment centers and stores. There is a Walmart within five miles of 70 percent
of the US population, which creates some interesting possibilities for serving customers with
drones."25 The strong and stable cash flow that the company is able to generate allows for sizable
investments in their global e-commerce sector.
In conjunction with the adjustments being made a look at the financials will further
portray the stability and growth of Walmart. Against decreasing growth in revenues, Walmart
has not only been successful in maintaining its 10 years average net margin at 3.4% but it has
also maintained its 42 years legacy of paying dividends at an increasing rate.26 Walmart’s
payout ratio in January 2006 was 22.4%, which went up to 40.2% in January 2015. From the
cash flow point of view, Walmart has witnessed increasing free cash flows and expects to
generate $80 billion in cash over the next three years27. (Exhibit 4).
In the recent guide, Walmart’s management is expecting a revenue growth of 3% in 2016
and 3-4% in period 2016-201828. To ensure higher employee morality and low turnover,
Walmart has increased its hourly wage to $9, which will be further increased to $10 in 2017, but
these rising wages will have a hit on Walmart’s bottom line.29 Walmart is aware of the
transforming behavior of the consumer towards e-commerce and is now trying to catch-up by
25
Whitney, Lance. "Walmart Wants to Test Its Delivery Drones Outdoors - CNET." CNET. Accessed November 9,
2015. http://www.cnet.com/news/walmart-wants-to-test-its-delivery-drones-outdoors/.
26
"NYSE: WMT 22nd Annual Meeting for the Investment Community." Walmart. Web. 9 Nov.
2015.http://cdn.corporate.walmart.com/38/a9/074dcff6449e8afcaca5ef04f04d/charles-holley-2015-analyst-meetingpresentation.pdf
27
"NYSE: WMT 22nd Annual Meeting for the Investment Community." Walmart. Web. 9 Nov.
2015.http://cdn.corporate.walmart.com/38/a9/074dcff6449e8afcaca5ef04f04d/charles-holley-2015-analyst-meetingpresentation.pdf
28
"Wal-Mart Sits at Multi-year Low after Guidance Stuns." Seeking Alpha. Accessed November 9, 2015.
http://seekingalpha.com/news/2829176-wal-mart-sits-at-multi-year-low-after-guidance-stuns
29
"Wal-Mart Sits at Multi-year Low after Guidance Stuns." Seeking Alpha. Accessed November 9, 2015.
http://seekingalpha.com/news/2829176-wal-mart-sits-at-multi-year-low-after-guidance-stuns
9
investing heavily in the infrastructure. The company has revised its capital expenditure estimates
to $12.4 billion in fiscal year 2016 and $12.9 billion in fiscal year 2017 up from $11.6 billion
and $11 billion respectively.30 Due to rising wages, the company expects earning per share for
2017 to decrease by 6%-12% but anticipates a growth of 5%-10% in 201931. One major reason
for higher growth in EPS could be Walmart’s share buyback plan. The company has announced a
$20 billion share buyback plan in the recent management guide32. Since 2006, the company has
repurchased 22.5% of outstanding shares33. Their strong balance sheet and positive cash flows
enable them to repurchase their shares whenever they feel they are undervalued. Their recent
announcement clearly indicates Walmart’s strong belief in its capability and confidence in its
own growth potential. Based on our estimates, we think that the fair value of Walmart is around
$71.68 per share as opposed to the current stock price of $ 57.24 per share which shows that the
stock is almost 25.2% undervalued(Exhibit 5). This undervaluation by the market offers an
excellent opportunity for the company to dive in and execute its share repurchase plan.
Our group bases our investment off two of the most basic financial criteria: level of risk
and rate of return on investment. These two criteria makeup an investment's expected return. In
judging the risk levels of an investment in Amazon it is necessary to point out that their P/E ratio
is higher than that of many stocks during the Dot-com Bubble. The red flags are not
undiscovered from there. With zero dividends and no future plans of paying dividends the
30
"Wal-Mart Sits at Multi-year Low after Guidance Stuns." Seeking Alpha. Accessed November 9, 2015.
http://seekingalpha.com/news/2829176-wal-mart-sits-at-multi-year-low-after-guidance-stuns
31
"NYSE: WMT 22nd Annual Meeting for the Investment Community." Walmart. Web. 9 Nov.
2015.http://cdn.corporate.walmart.com/38/a9/074dcff6449e8afcaca5ef04f04d/charles-holley-2015-analyst-meetingpresentation.pdf
32
"NYSE: WMT 22nd Annual Meeting for the Investment Community." Walmart. Web. 9 Nov.
2015.http://cdn.corporate.walmart.com/38/a9/074dcff6449e8afcaca5ef04f04d/charles-holley-2015-analyst-meetingpresentation.pdf
33
Jørgensen, Steffen. "Wal-Mart: A Wonderful Company At An Attractive Price." Seeking Alpha. Accessed
November 9, 2015. http://seekingalpha.com/article/3653046-wal-mart-a-wonderful-company-at-an-attractiveprice?auth_param=1980ia:1b3nir2:f5c3115441d442bfc10e2c4571b26b73&dr=1.
10
concept of pure growth is the philosophy one would need to sustain buying shares of Amazon.
Investing in Amazon without creating any diversification in a portfolio to hedge against any
shortfalls of the company would leave an investor exposed and vulnerable. On the flipside,
looking for limited risk one needs to look no further than an investment in Walmart. While
lagging in growth, has proven over the past 50 years its dependability. With 42 years of dividend
growth Walmart provides assurance to its shareholders that they are going to stay loyal to its
principals. After looking into the option of derivatives and other financial vehicles it became
apparent that the highest return would be an investment structured to buy and hold Walmart
stock for a ten year period, reinvesting all dividends. Based on fundamentals Walmart is proving
that it will be able to adjust and stay the prominent retailer it has been for the past fifty years
going forward for the next ten years.
11
Index
Exhibit 1:
Following table shows the contribution of all the three segments to Amazon’s revenue
for three quarters ending September34:
Amounts in$ MM
Nine
Months % of Net Sales Nine
Months % of Net Sales
Ended September Mix
September Ended September Mix
September
2015
2015
2014
2014
North America
42,208
59%
33,499
56%
International
23,577
33%
22,936
39%
AWS
5,474
8%
3,224
5%
Exhibit 2:
Amazon’s Free cash flow from 2005 to September 2015 35
Amount
in $ MM
2005
Operating
Cash
Flow
733
Cap
Spending
-204
Free Cash
Flow
529
2006
2007
2009
2010
1,697
3,293
3,495
-224
-333
-373
486 1,181
1,364
2,920
702 1,405
-216
2008
2011
2012
2013
2014
TTM
3,903
4,180
5,475
6,842
9,823
-979 -1,811
-3,785
3,444
-4,893
4,425
395
2,031
1,949
5,398
2,516
2,092
34
Amazon - 3rd Quarter 2015 Financial Results
"Amazon.com Inc." Growth, Profitability, and Financial Ratios for (AMZN) from Morningstar.com. Accessed
November 9, 2015. http://financials.morningstar.com/ratios/r.html?t=AMZN®ion=usa&culture=en-US
35
12
Exhibit 3: Required Cash Flow Growth Rate Calculation
Amount in $ MM
2015E
Free Cash Flow
5,900
Growth rate36
Terminal Value37
2016E
2017E
2018E
2019E
2020E
10,030
16,048
23,270
31,414
40,775
70.00%
60%
45%
35%
29.8%
8,789
12,556
16,258
440,408
Discounted cash flow38
965
Enterprise value
326,217
Debt39
18,590
Cash40
14,430
Value per Share41
625.47
19,598
268,051
Exhibit 4: Walmart’s Free cash flow from 2006 to January 201542
Amount in
$ MM
Operating
Cash Flow
Cap
Spending
Free Cash
Flow
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015-1
17,633
20,354
14,937
23,147
-11,499
26,249
12,184
23,643
-14,563
20,164
15,666
-12,699
24,255
13,510
25,591
12,898
23,257
13,115
28,564
12,174
3,070
4,498
5,417
11,648
14,065
10,944
10,745
12,693
10,142
16,390
36
Assumed growth rate
Based on free cash flow perpetuity growth rate of 2.5% and WACC of 11.99% from Amazon.com Inc (AMZN)
Weighted Average Cost Of Capital (WACC). Accessed November 9, 2015.
http://www.gurufocus.com/term/wacc/AMZN/Weighted%2BAverage%2BCost%2BOf%2BCapital%2B%2528WA
CC%2529/Amazon.com+Inc.
38
Calculated as at 31st October 2015
39
"AMZN Key Statistics | Amazon.com, Inc. Stock - Yahoo! Finance." AMZN Key Statistics | Amazon.com, Inc.
Stock - Yahoo! Finance. Accessed November 9, 2015. https://finance.yahoo.com/q/ks?s=AMZN Key Statistics.
40
"AMZN Key Statistics | Amazon.com, Inc. Stock - Yahoo! Finance." AMZN Key Statistics | Amazon.com, Inc.
Stock - Yahoo! Finance. Accessed November 9, 2015. https://finance.yahoo.com/q/ks?s=AMZN Key Statistics.
41
Based on number of shares outstanding:"AMZN Key Statistics | Amazon.com, Inc. Stock - Yahoo! Finance."
AMZN Key Statistics | Amazon.com, Inc. Stock - Yahoo! Finance. Accessed November 9, 2015.
https://finance.yahoo.com/q/ks?s=AMZN Key Statistics. Compared to closing market price at 30th October 2015:
"AMZN Historical Prices | Amazon.com, Inc. Stock - Yahoo! Finance." AMZN Historical Prices | Amazon.com,
Inc. Stock - Yahoo! Finance. Accessed November 9, 2015. http://finance.yahoo.com/q/hp?s=AMZN Historical
Prices.
42
"Wal-Mart Stores Inc." Growth, Profitability, and Financial Ratios for (WMT) from Morningstar.com. Accessed
November 9, 2015. http://financials.morningstar.com/ratios/r.html?t=WMT®ion=usa&culture=en-US.
37
13
Exhibit 5: Walmart Share Value Calculation
Amount in $ MM
2016 E
2017E
2018E
2019E
2020E
2021E
Operating Cash Flow
28,500
26,667
26,667
26,66743
26,933
27,472
Capex
12,400
11,000
11,00044
11,000
11,000
11,000
Free Cash Flow
16,100
15,667
15,667
15,667
15,933
16,472
Terminal Value45
306,964
Discounted cash flow46
3,956
Enterprise Value
285,517
Debt47
49,690
Cash48
5,750
Equity Value
230,007
Value per Stock49
71.68
14,361
13,395
12,494
11,852
229,459
43
2017E to 2019E- average of $ 80 billion cash expected to generate: "NYSE: WMT 22nd Annual Meeting for the
Investment Community." Walmart. Web. 9 Nov. 2015.
http://cdn.corporate.walmart.com/38/a9/074dcff6449e8afcaca5ef04f04d/charles-holley-2015-analyst-meetingpresentation.pdf. 2020E and 2021E assumed to grow at 1 and 2% respectively
44
as per management’s guide "NYSE: WMT 22nd Annual Meeting for the Investment Community." Walmart.
Web. 9 Nov. 2015. http://cdn.corporate.walmart.com/38/a9/074dcff6449e8afcaca5ef04f04d/charles-holley-2015analyst-meeting-presentation.pdf. For 2020E and 2021E, assumed to remain stable
45
Based on free cash flow perpetuity growth rate of 1.75% and WACC of 7.21% from Accessed November 9, 2015.
http://www.gurufocus.com/term/wacc/WMT/Weighted Average Cost Of Capital %28WACC%29/Wal-Mart Stores
Inc.
46
discounted as at 31st October 2015
47
"WMT Key Statistics | Wal-Mart Stores, Inc. Common St Stock - Yahoo! Finance." WMT Key Statistics | WalMart Stores, Inc. Common St Stock - Yahoo! Finance. Accessed November 9, 2015.
http://finance.yahoo.com/q/ks?s=WMT Key Statistics.
48
"WMT Key Statistics | Wal-Mart Stores, Inc. Common St Stock - Yahoo! Finance." WMT Key Statistics | WalMart Stores, Inc. Common St Stock - Yahoo! Finance. Accessed November 9, 2015.
http://finance.yahoo.com/q/ks?s=WMT Key Statistics.
49
Based on number of shares outstanding: "WMT Key Statistics | Wal-Mart Stores, Inc. Common St Stock - Yahoo!
Finance." WMT Key Statistics | Wal-Mart Stores, Inc. Common St Stock - Yahoo! Finance. Accessed November 9,
2015. http://finance.yahoo.com/q/ks?s=WMT Key Statistics. Compared to closing market price at 30th October
2015 : "WMT Historical Prices | Wal-Mart Stores, Inc. Common St Stock - Yahoo! Finance." WMT Historical
Prices | Wal-Mart Stores, Inc. Common St Stock - Yahoo! Finance. Accessed November 9, 2015.
http://finance.yahoo.com/q/hp?s=WMT Historical Prices.
14