While Wal-Mart Stores Inc. (NYSE: WMT) stock is down 2% since the beginning of the year, its corporate sibling south of the border has been climbing -- up 17% -- since its American Depository Receipts (ADRs) launched on the US OTC. As mentioned in the latest issue of The Cohan Letter, Wal-Mart de Mexico SA de CV (OTC ADR: WMMVY) ("Walmex") has been climbing -- and despite a high valuation, its prospects for the future look promising.
Walmex is a true Mexican one stop shopping complex -- which is 62% owned by WMT. Walmex operates 783 commercial units in 103 cities across Mexico, including the following:
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Sam's Club, 69 stores offering wholesale prices to its members;
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Bodega Aurrera, 203 discount stores;
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Wal-Mart Supercenter, 105 hypermarkets across Mexico;
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Superama, 55 supermarkets, offering lines in clothing, such as Mary Kate & Ashley and G by George, a brand created by the ASDA - Walmart chain in the UK; and
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Restaurants, 298 units including Vips, El Porton and Ragazzi.
WMMVY's financial performance has been strong. In the most recent 12 months, sales were $16.2 billion having grown an average of 17.4% over the last five years. WMMVY earned $975 million in the most recent 12 months, having increased an average of 21.6% over the last five years. WMMVY trades at a P/E on 2006 earnings of 30.2 and has risen 60% in the last 52 weeks. WMMVY is expected to earn $1.25 per share in 2006 and $1.49 in 2007, a 19% increase.
Why do I prefer WMMVY over WMT? Here are three reasons:
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Political football. As I posted last month, Wal-Mart has become a political football which caps its growth;
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Slower growth and lower valuation. Compared to WMMVY, its growth is modest -- WMT's revenues grew half as fast, its profits rose at 57% the growth rate, and its earnings are expected to climb at 63% the rate of increase. In the most recent 12 months WMT's sales were $331.5 billion having grown an average of 10.3% over the last five years. WMT earned $11.6 billion in the most recent 12 months having increased an average of 12.3% over the last five years. WMT trades at a P/E on 2006 earnings of 16 and has risen 2% in the last 52 weeks. WMT is expected to earn $2.91 per share in the fiscal year (FYE) ending 1/07 and $3.27 in the FYE ending 1/08, a 12% rise; and
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Stock is dead money. Despite a big boost from Warren Buffett, whose company owns nearly 20 million shares, WMT stock refuses to budge. Some might argue that WMT's 62% stake in WMMVY -- worth $18 billion -- would represent hidden value. But I am not sure it's hidden since it's reported in WMT's 10K. Moreover, that $18 billion represents a relatively small 9% of WMT's market capitalization.
My conclusion: while Wal-Mart is bigger and trades at a lower valuation, its earnings growth rate may not be high enough to justify that valuation. Walmex is growing faster and its valuation is higher to reflect that higher growth. Investors must decide whether that higher valuation means the stock price won't rise much further.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm, and a Professor of Management at Babson College. He has no financial interest in the securities of Wal-Mart of Walmex.
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Reader Comments (Page 1 of 1)
9-07-2006 @ 12:49AM
James said...
What is the difference between Walmex traded as WMMVF and WMMVY?