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Stock Strategist

World's Largest Retailer Defends Its Turf

E-commerce and labor investments weigh on Wal-Mart's growth, but our long-term view is intact and shares are undervalued.

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With unrivaled scale,  Wal-Mart (WMT) focuses on operating at the lowest cost possible (everyday low cost, or EDLC) so that it can offer customers lower prices than its competitors (everyday low prices, or EDLP). Wal-Mart's "productivity loop," which summarizes the firm's strategy, is based on four mutually reinforcing pillars: operate for less, buy for less, sell for less, and grow sales.

After reviewing Wal-Mart’s first-quarter results, we don’t expect a material change to our wide moat rating or our $83 per share fair value estimate, as the firm's profit drop and outlook were in line with our expectations. Having fallen after the earnings release, Wal-Mart's shares trade at a 7% discount to our fair value estimate. Given our low uncertainty rating and the less attractive valuations for other retailers, we suggest that investors start looking to build a position in Wal-Mart.

Ken Perkins does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.