Inside Wall Street: Wal-Mart going upscale

The world's largest retailer should attract more customers by partnering with American Express on prepaid cards.

By Gene Marcial Oct 15, 2012 2:51PM

Wal-Mart store in Secaucus, New Jersey, Jin Lee, Bloomberg via Getty ImagesYou've got to hand it to Wal-Mart Stores (WMT). It has done something novel -- and somewhat classy -- for its discount shoppers. And, of course, something that should make it more profitable.

 

The global retailing giant wants to offer its bargain-oriented core customers a shot at upward mobility by giving them entry into the world of nonbank debit cards. In partnering with blue-chip American Express (AXP), Wal-Mart is giving a big part of its low-income customers who shun banks access to convenient spending through prepaid cards.

 

The cards work like debit cards, although with the AmEx-Wal-Mart Bluebird cards, you don't need money in the bank to have one. You load up the card with cash and then use it like a debit card. The card makes it easier for people without bank or checking accounts to go shopping. 

 

The world of nonbanking prepaid-card customers represents a $45 billion market, according to some financial advisory groups, which Wal-Mart could tap to its advantage. For Wal-Mart, it's practically a new business waiting to be profitably developed.

 

American Express and Wal-Mart have provided little details about their partnership, so Wall Street has yet to estimate what it means to the top and bottom lines of both companies. But in a real sense, what it means for both is an additional market and new customers.

 

Little wonder, then, that shares of Wal-Mart look like they are on a steady escalator upward, driven not only by the company's impressive performance in its latest quarter but enhanced by the emergence of new market opportunities.

 

Also adding to the increasingly positive Wal-Mart picture is its decision to provide same-day delivery services for its customers from its neighborhood stores, which is a direct challenge to Amazon's (AMZN) treasured territory -- and a measured expansion into e-commerce.

 

Wal-Mart's stock rose to a new high of $77.14 on Monday, way up from $57 not too long ago -- on April 24, 2012. Some analysts see the stock gaining another 10 to 20 points in 12 months, even before more specifics are announced about the prepaid cards.

 

Analyst Robert S. Drbul of Barclays Capital, who rates Wal-Mart "overweight," notes that the company continues to drive growth, leverage and returns "with a new focus on momentum, discipline and investment." He expects 2013 to be another growth year with sales rising 5% to 7%, based on square footage increase of 3% to 4%, which implies $23 billion to $33 billion in incremental sales and 36 to 40 million new square feet of store space.

 

One of Wal-Mart's latest innovative moves is the small store format. These stores are smaller in size and square footage, but show very good customer traffic. "Neighborhood markets are a very productive format, with comps (comparative sales) up 5% in the first half of 2012, approximately twice that of the rest of the U.S. store fleet," Drbul points out.

 

Wal-Mart continues to gain points on Wall Street because of its efforts to please millions of customers with its steady value pricing, as well as efforts to reassure its shareholders by providing solid returns.

 

"We expect Wal-Mart to pursue a balanced approach toward increasing shareholder value through its sustainable long-term growth in its proven business model," says Drbul. And "we continue to be impressed with its disciplined expense management and strategies in place to maintain positive comps," he adds.

 

The analyst, who has a 12-month price target of $80 to $85 a share for Wal-Mart, is confident the company has the potential to build on current momentum in positive traffic trends and leverage expenses to offset any gross margin pressure.

 

The price target of $85 is about 15 times his 2013 earnings estimate of $5.20 a share, on sales of $498 billion, up from estimated 2012 profits of $4.90 a share on $474.2 billion. For 2014, he forecasts earnings of $5.85 on sales of $523.5 billion.

 

Analyst David A. Schick of investment firm Stifel Nicolaus, who rates Wal-Mart a "buy," has a price target of $83 a share. He says it could potentially be trading at 15 times estimated earnings of $6 a share a year from now -- that is, $90 a share.

   

Tags: AXPWMT
102Comments
Oct 15, 2012 10:33PM
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I cannot believe the lies that so many people are willing to tell about Walmart.  I have worked for Walmart for 24 years as both part time and full time.I have sustained a good living even though I do not have a college degree.  Walmart has never made any associate pay to get money off the paycard. Walmart has benefits for both full and part time. In fact, my health insurance

premiums are going down for 2013 with no change in coverage.  Walmart offers jobs to many people that would otherwise not be able to work. 

Oct 15, 2012 5:34PM
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How exactly is this easier than just using cash?  Except for now you get to pay a fee... Is it for use online?  I guess I just don’t get the point.

Oct 15, 2012 5:32PM
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upscale move does that mean their going to hire people with teeth and can speak english.

Oct 16, 2012 12:47AM
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I am also a self-employed business owner.  My time is LIMITED.  I always shopped my local Walmart in the past.  They are approximately 20 minutes from my home. I could purchase home/health/beauty/food/etc items in ONE STOP :)   I have noticed this year (2012) they are FREQUENTLY ' out of stock' of the items I have purchased REGULARLY in the past :(  This requires a trip to ANOTHER grocery store OR making a longer trip to another Walmart, approximately 35 minutes from my home.  I have been choosing to FORGO WALMART in exchange for the local grocery. I pay  more but they HAVE WHAT I NEED.  Non-food items are just purchased on a twice-monthly trip to OTHER stores.  Walmart is getting SERIOUSLY CLOSE to losing me as a customer.  I simply don't have the TIME to make a trip to their store and walk away empty-handed :(  Their prices are great.  Service is 'iffy,' but that's the price consumers PAY for LOW PRICES, a fair trade I think. I am just disappointed in their lack of STOCK these days :(   
Oct 16, 2012 12:14AM
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I love Walmart. I am not a lowlife. I own my own business and can shop anywhere. I have tried shopping locally. They either don't have what you want or the price is 3 times higher or there is no parking. I can go to Walmart and get what I want for a resonable price,they have what I need and usually several brand choices. There is parking and they are fair. I ordered an air cond. online and they only charged me .97 cents to deliver it. Who else would only charge me that ? I bought a humidifier online and it was broken when I got it. Walmart had a new one in my hands in less than 24 hrs. Again ,,who else?If you don't like Walmart, this is America,,,,don't shop there.
Oct 15, 2012 9:37PM
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I work for Walmart & receive my pay on the money network card & have never paid to get cash off my card. You don't have to get your pay that way it can be deposited in any bank account. As for the cards you load money on they have been around for quite some time. As for those who hate Walmart please don't shop there we don't like having to put up with your bad attitudes.
Oct 15, 2012 8:04PM
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You can say what you want about Wal Mart but at least they hire handicap people who love the fact they with their diability can still contribute and make a living on their own. I can't say that about other companies and not only thta but Wal Mart gives millions upon millions to the CMN and other charities.
Oct 16, 2012 10:16AM
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 I suppose all of you Walmart customers are less about our economy.  Since Sam passed, the Walton kids have been only concerned about $$$; in fact so much so that 4 Waltons are among the 10 richest peope but their employees are treated very good  They now sell nothing made in the USA.  If we don't commit to buy American how can we expect the economy to improve.  Stop the Walmart insanity just to save a dime.  If consumers cannot invest in buying American, then we should not blame the government.
Oct 15, 2012 9:35PM
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Funny Jokes About Walmart
Walmart Jokes – Walmart Doctor Machine Joke

Joe complains to Mike his elbow hurts..he should go see a doctor Mike says, go to the Wal Mart Dr.. its a machine u dump a little bit of a urine sample in and it tells u whats wrong with u, so Joe figured he’d give it a try! Joe goes to the Walmart Dr and dumps his urine in the slot. After 30 secs the Dr prints out a report that read…”u have tennis elbow, take some alieve & avoid heavy lifting” later that night joe wondered if he could mess with the Walmart Dr..so he mixed a little of his house tap water..some puppy stool…urine samples from both his daughter and wife…and a little semen sample of his own…took it back to the Walmart Dr…dumped it in the slot. After about a 1 min it printed the report… Your tap water is to hard buy softener aisle 7…ur puppy has worms…buy meds aisle 3…ur daughter is addicted to crack put her in rehab…ur wife is prego w/twins…their not urs…get a lawyer…and quit **** or your elbow will never get better!! Thank you for shopping Walmart!!!

Walmart Jokes – Rod & Reel Joke

A woman goes into Walmart to buy a rod and reel. She doesn’t know which one to get so she just grabs one and goes over to the register. There is a Walmart “associate” standing there with dark shades on. She says, “Excuse me sir …..can you tell me anything about this rod and reel?”

He says , “Ma’am I’m blind but if you drop it on the counter I can tell you everything you need to know about it from the sound that it makes.”
She didn’t believe him, but dropped it on the counter anyway. He said “That’s a 6′ graphite rod with Zebco 202 reel and 10 lb. test line……It’s a good all around rod and reel and it’s $20.00.”

She says, “That’s amazing that you can tell all that just by the sound of it dropping on the counter. I think it’s what I’m looking for so I’ll take it” He walks behind the counter to the register. And in the meantime the woman farts. At first she is embarrassed but then realizes that there is no way he could tell it was her … being blind he wouldn’t know that she was the only person around.

He rings up the sale and says, “That will be $25.50.”
She says, “But didn’t you say it was $20.00?”
He says, “Yes ma’am, the rod and reel is $20.00, the duck call is $3.00, and the catfish stink bait is $2.50

Oct 15, 2012 9:53PM
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Wal-Mart going upscale?  That's like putting silk socks on a hog.
Oct 16, 2012 11:12AM
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Ahhhhhhhhhhh......here is a news headline.

Walmart isn't the cheapest!

Oct 15, 2012 5:20PM
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There help is so low paid,that many are on welfafe.
Oct 16, 2012 1:55PM
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I stopped shopping at Walmart about 6 months ago.  I can't stand how crowded it is and how rude people are.  The parking is horrendous.  Target is way better...AND I can grab a Starbucks while I shop :)

Oct 15, 2012 5:39PM
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Does this remind anyone of the coal script days?  I worked for Walmart.  Want to know how they paid us?  Via the "Walmart Money Network."  Want to know what that meant?  We had to pay Walmart a fee to get our wages off of their card.  Boo to Walmart and double boo to AmEx. 
Oct 16, 2012 12:24PM
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Doesn't really seem so Earth shattering to me.  Why not just buy gift cards and use them yourself?

Oct 15, 2012 7:25PM
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This is not a kind gesture from Wal Mart, just something to suck more money from its customers,  noticed the last few visits they have cut out most of the store greeters.  Boy that sure helps the older folks income.

Oct 16, 2012 1:22PM
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Some people don't get bank accounts so there is no $$$ being shown as income. How else can they get public assistance? It's a disgrace!!

Oct 16, 2012 1:34PM
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How is this easier?? It's the same as cash and you have to load the card yourself, is this useful so people who dont have bank accounts or credit cards feel the same as those who do...the only benefit i can see is if you want to order something online

Oct 15, 2012 8:08PM
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U do not have to be in management to be fulltime at walmart. Your getting wrong info about Wal Mart
Oct 15, 2012 4:29PM
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Big whoop, Costco has offered Amex cards for several years.  WallMart is losing ground to their competitors - they can't even claim they have the lowest prices.  I had a great laugh last week when they started running ads showing how much better their prices are then Wallgreens (here in Indiana).  Next week they'll be taking on 7-11!  
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