Wal-Mart China accused of food safety violations
The charges could damage the retailer's image in emerging economies and jeopardize its operations.
According to claims by Beijing Food Safety Administration, Wal-Mart sold sesame oil and squid with dangerous amounts of cancer-causing chemicals in March. The sesame oil exceeded standard amounts of benzopyrene and the squid contained hazardous levels of cadmium, which are considered to be harmful for human consumption.
The company is facing another accusation by Dazhou's animal husbandry department of selling pork ribs derived from diseased pigs in January.
These two allegations have raised serious questions about the food safety measures followed by Wal-Mart. Last year, the retailer had to deal with a pork-labeling scandal that affected its China operations adversely and damaged its reputation. The allegation led to the arrest of two store managers, the closure of stores, and a consequent restructuring of the management team in China.
Emerging economies such as Brazil and China are very important for retailers from a strategic growth perspective. According to our estimates, international operations contribute approximately 40% to Wal-Mart's current valuation.
Wal-Mart's strategy this year is to focus on its existing international operations rather than scouting new regions for growth. (See our previous post: Wal-Mart Can Reach $72 Focusing On Existing Intl. Markets For Growth.) However, such allegations could damage its image in the emerging economies and jeopardize its future operations.
We maintain a $71 price estimate for Wal-Mart's stock, implying about 5% premium to the current market price.
More from Trefis
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
After rewarding traders with triple-digit profits this year, this fuel cell maker should see more gains ahead. Here are two ways to trade it.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.