Wal-Mart thrives in economic storm
The pieces are all falling into place for a great year for the nation's top retailer.
The ingredients are all there, and that's why analysts with Stifel Nicolaus have upgraded the stock to "buy." The company will succeed even in a slowdown in consumer spending, analysts said.
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Investors have clued into this for months now. That's why, after languishing for years, Wal-Mart shares have shot up 46% in the last year to close Monday at $74.28.
In some ways, Wal-Mart will see a repeat of 2008, a year in which Americans felt the pressure of high gas prices, food inflation and a crumbling housing market. This year isn't an exact repeat -- gas prices are low and the housing market is slowly recovering -- but there are other factors weighing heavily on consumers' minds. Some tax cuts are set to expire at the end of the year, and federal spending cuts may take place weeks later.
Wal-Mart did well in both years. Stifel analyst David Schick said his company's survey showed that more people are making weekly visits to the store. He upped his earnings estimate for the second quarter to $1.20 per share from $1.17 a share, and also hiked his full-year estimate to $5.09 a share from $4.97 a share.
He thinks the company's share price could rise to $83 in the next year.
Wal-Mart went into a spiral after 2008. It reacted to the recession badly and made some unwise moves aimed at grabbing wealthier customers that may be trading down. It cut its selection, rearranged its aisles and upped some prices. It was blindsided by the consumer shift to dollar stores for household goods. It continued focusing on super-sized bundles when shoppers couldn't afford them.
As a result, U.S. sales slumped for nine straight quarters. Management finally reversed that trend by making some key decisions, such as dumping its promotional pricing experiments and returning to its "everyday low pricing" model.
The new strategy is working. Gas prices are low, giving lower-income shoppers more cash to spend. Shoppers are very price-focused in this election year. And finally, Wal-Mart is benefiting from the management problems at JC Penney (JCP) and Sears (SHLD).
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