Premium Essay

Valuation

In: Business and Management

Submitted By ziko
Words 1158
Pages 5
Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. The company operates in three segments: Walmart U.S., Walmart International, and Sam's Club. It operates retail stores, restaurants, discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, apparel stores, Sam’s Clubs, neighborhood markets, and other small formats, as well as walmart.com; and samsclub.com.

Wal-Mart’s main strategy is to provide customers with everyday low prices. It is known for its discount stores. Wal-Mart’s competitors are Sears, Target, Gap, limited, Dillard’s, Macy’s and JC Penny. The major membership only warehouse competitor is Costco Wholsale.

Wal-Mart became a publicly traded firm in 1970 with an initial stock price of $16.50 per share and subsequently, in March 1974, declared its first cash dividend of $0.05 per share (after two two-for-one stock splits). It had undergone 11 two-for-one stock splits, and thus, an original lot of 100 Wal-Mart shares had grown to 204,800 shares after the most recent split in April 1999.

For this valuation we will be using the dividend discount model, the capital asset pricing model (CAPM) and price/earnings multiples.

Dividend Discount Model (DDM)

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

[pic]

I. Dividends in Perpetuity

The current stock price of Wal-Mart using this method is the present value of all expected future dividends, discounted at an investor’s required rate of return. A share is valued by forecasting futures dividends of Wal-Mart.

• Constant growth dividend discount model.

According to the constant growth DDM, the

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