VALUING WAL-MART-2010

Contents:

1. Background of Wal-Mart stores, Inc.

2. Valuing approach

3.1 Dividend Discount model

3.2 Capital asset pricing model

3.3 The Price/Earning multiple approach

3. Recommendation

1. Background Wal-Mart stores, Inc.
Wal-Mart was the world’s largest retailer, operating more than 8,400 stores worldwide. Wal-Mart’s strategy was to provide a broad assortment of quality merchandise and services at ”everyday low prices”.
In general merchandise area, Wal-Mart’s competitors included Sears and Target; In terms of specialty retailers, its competitors included Gap and Limited; Department store competitors included Dillard’s and Macy’s; Grocery store competitors included Safeway and Kroger; The major membership-only warehouse competitor was Costco Wholesale.

2. Valuing approach
In this case, I will use three different methods, including the capital asset pricing model (CAPM), the dividend discount model, and the price/earnings multiples, to value the War-Mart, Inc. and to determine whether this company was fairly valued.

3.1 Dividend Discount model * Method introduction
According to the dividend discount model(DDM), the current stock price of Wal-Mart represents the present value of all expected future dividends, discounted at an investor’s required rate of return. Under this approach, a share is valued by forecasting dividends in perpetuity.
Then, P0 = D1/(Ke – g) * Source of data

1.Expected perpetual dividend growth rate (g)
Anticipated dividend growth is often estimated in variety of ways. First, observed historical dividend growth can be assumed to continue in a perpetual fashion. Second, future dividend growth can be estimated on the basis of recent estimated of analysts.
In this case, one respected analyst had estimated the expected constant dividend growth