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Wal-Mart Sell-Off Is Buying Opportunity

Although we’re lowering our fair value estimate slightly, we think the market’s skepticism over business investments is misplaced, writes Morningstar’s Ken Perkins.


We expect to lower our $79 fair value estimate for  Wal-Mart (WMT) by approximately 5%, but we believe the nearly 10% sell-off in Wal-Mart’s shares following the company’s fiscal 2017 guidance (earnings expected to be down 6%-12%) represents an overreaction and a buying opportunity in this wide-moat firm. With shares trading around 13-14 times fiscal 2017 earnings, we think that Wal-Mart shares warrant a closer look.

The sell-off and market price of Wal-Mart’s shares imply that Wal-Mart’s recent investments in e-commerce and wages will be unsuccessful in driving profits long-term. We see this scenario as a possibility, but we believe that the market underestimates wide-moat Wal-Mart’s cost advantage and its ability to compete with an omnichannel model.

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