Wal-Mart: How Important is the Buyback?
Wal-Mart has grown EPS from $1.20 in 2000 to an expected $4.48 this year, a growth rate of about12% per year. Sales growth, understandably, accounted for about 60% of the increase, fatter profit margins contributed 9% and share buybacks caused 30% of the 12% EPS gain. In other words, WMT grew EPS 4% per year just by reducing its share count. Think about that for a moment.
Looking ahead, borrowing costs are the lowest they’ve been in 70 years, so the cost of financing future share buybacks pales in comparison to the cost during the past decade. Even more attractive is the fact that Wal-Mart shares are far less expensive today (in terms of earnings that can be purchased for each share that is acquired), than they were during much of the past decade, making future buybacks even more accretive to shareholders.
What’s Driving EPS Growth?
Overestimating “Made in China”
Despite pre-conceived notions, Goods and Services from China accounted for only 2.7% of U.S. consumption. Read more here at The Big Picture.
CPG Buyouts
Prognosticator calls for CPG Stalwarts International Flavors & Fragrances and Kellogg to get acquired this year. 15 Surprises for 2012
Weekend Reading on Retail/CPG Industry:
FINANCIAL PLANNING
How a CPA’s Dad was Defrauded. Just because assets are in a Trust doesn’t make them safe. If you are helping your parents with their finances, you may want to read this article. It’s a very intriguing story which illustrates why trust isn’t enough for financial relationships; As Reagan said, “Trust, but Verify.”
A Few Useful Financial Planning Charts
STOCKS, BONDS AND MARKETS
A New Year brings in predictions, most wrong and many harmful. Instead, here’s the most succinct and sensible guidepost for the current environment we’ve seen, courtesy of Mr. Buffett. When asked about his investment activity in the 3Q2011 on CNBC (Nov 14, 2011):
“…there are lots of attractive stocks. I can’t think of a lot of attractive bonds and I certainly can’t think of a lot of attractive currencies to stick in my pocket.”
On Uncertainty:
“The world’s always uncertain. The world was uncertain on December 6th, 1941, we just didn’t know it. The world was uncertain on October 18th, 1987, you know, we just didn’t know it. The world was uncertain on September 10th, 2001, we just didn’t know it. The world – there’s always uncertainty. Now, the question is, what do you do with your money? And if you – the one thing is if you leave it in your pocket, it’ll become worth less – not worthless - worth less over time. That’s certain – that’s almost certain. You can put it in bonds and then you get a certain 2% for 10 years and that’s almost certain to be less than the decline in purchasing power. You can put it in farms and the farms will probably keep growing corn and soybeans and they’ll grow it whether, you know, Italy has trouble tomorrow or not. It’s very interesting to me, if you own a farm and somebody said, you know, Italy’s got problems. Do you sell your farm tomorrow? If you own a good business locally in Omaha and somebody says Italy’s got problems tomorrow, do you sell your business? No. But for some reason, people think that if they own wonderful businesses indirectly through stocks, they’ve got to make a decision every five minutes.”
Boston Mountain Money Management, Inc., of Rogers, Arkansas is a financial planning firm for executives. Our clients typically have sophisticated financial planning needs and/or $500,000 or more in investable assets.
Have a thought or comment? Let us know.
Scott Alaniz, CFA
scott@bostonmmm.com
Joe Chumbler, CFA
joe@bostonmmm.com
Rogers, AR 479-657-6940
Information in this report has been obtained from sources that we believe to be reliable. Boston Mountain Money Management does not guarantee its accuracy or completeness and assumes no responsibility for actions taken with respect to information contained herein. The authors held a position in Wal-Mart Stores, Inc. at the time of this post.
Have a thought or comment? Let us know.
Scott Alaniz, CFA
scott@bostonmmm.com
Joe Chumbler, CFA
joe@bostonmmm.com
Rogers, AR 479-657-6940
Information in this report has been obtained from sources that we believe to be reliable. Boston Mountain Money Management does not guarantee its accuracy or completeness and assumes no responsibility for actions taken with respect to information contained herein. The authors held a position in Wal-Mart Stores, Inc. at the time of this post.
