Inside Wall Street: Wal-Mart going upscale
The world's largest retailer should attract more customers by partnering with American Express on prepaid cards.
You'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.
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.
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.
upscale move does that mean their going to hire people with teeth and can speak english.
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!!!
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
Walmart isn't the cheapest!
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 :)
Doesn't really seem so Earth shattering to me. Why not just buy gift cards and use them yourself?
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.
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!!
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
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. 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 SIX Financial Information.
All hail the bull market, which ended the week with a big rally. But it also is starting to look a little like 1987, which suffered an epic blow-out.
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.