Had a prudent investor bought 500 shares of Wal-Mart Stores, Inc. (WMT) back in 1975, but the end of 1999, thanks only to stock splits, that investor would have become the proud holder of 256,000 shares of stock.

Obviously, that prudent investor was not me since in 1975 I didn't have two nickels to rub together much less money to buy a stock. But what about those looking for investments today. How will they view an investment in Wal-Mart? Given my valuations, will they, will you, pass?

Wal-Mart Stores, Inc.

Walmart, Inc. is engaged in retail and wholesale operations with three reportable segments, Walmart U.S., Walmart International, and Sam’s Club. Industry peers include Target Corporation, The Kroger Company, and Amazon.com, Inc.

Short-Term Value

My short-term (3-6 week hold) target price for the stock is $94.56, with an initial trailing stop at $83.55. Upward price movement will find resistance at $87.27 and $92.94, with final resistance at $97.46. Downward price movement will find support at $82.56.

Days to Cover

The most recent days to cover number is 3. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume. The days to cover number is sometimes used as a volatility precursor for a stock.

The Tax Act

The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Wal-Mart Stores, Inc., the net tax benefit recognized in fiscal 2018 related to the Tax Act was $0.2 billion. As the company completes its analysis of the Tax Act and incorporates additional guidance that may be issued by the U.S. Treasury Department, the IRS or other standard-setting bodies, the company may identify additional effects not reflected as of January 31, 2018.

The Act requires the company to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets, as defined by the Tax Act, and 8.0% on the remaining earnings. The company recorded a provisional amount of $1.9 billion of additional income tax expense for its one-time transitional tax liability. The company recorded a provisional amount based on estimates as it completes its analysis of the application of the effects of the Tax Act as well as finalize its calculations surrounding the components of its foreign subsidiaries subject to the transition tax including the potential of any correlative adjustments.

The Tax Act reduces the U.S. statutory tax rate from 35% to 21% for years after 2017. Accordingly, the company re-measured its deferred taxes as of January 31, 2018, to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. The company recognized a deferred tax benefit of $2.1 billion to reflect the reduced U.S. tax rate and other effects of the Tax Act. The benefit associated with the remeasurement of the deferred taxes is provisional as of January 31, 2018, as the company continues gathering the necessary information to complete the calculations.

Note that for fiscal 2017, 0% of net income came from income tax benefits.

Insider Transactions

In the past 12 months, the company reported 255 insider trades involving 110,318,403 shares of stock. Of those 255 insider trades, 64 were Buys involving 1,215,163 shares of stock, and 191 were Sells involving 109,103,240 shares of stock, creating an insider buy to sell ratio of 0.01 to 1.

Acquisitions/Mergers

The company completed certain eCommerce acquisitions during fiscal 2018 and 2017, which were immaterial, individually and in the aggregate.

Divestitures and Dispositions

In April 2017, one of the company sold Suburbia, the apparel retail division in Mexico, for $1.0 billion.

Year-Over-Year

Several year-over-year metrics of interest are revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and year to date price growth. For Wal-Mart Stores, Inc., revenue increased by 3%, earnings decreased by 2%, free cash flow increased by 5%, total debt increased by 1%, and the stock price increased by 7%. Year to date the stock price is down 20%.

Future Value

My future (5-year hold) target price for the stock is $124, which is an average annual return of 9%. A prior five-year hold of the stock (FY2014- FY2018) would have returned an average of 8% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value
As an on-going concern, my baseline valuation for the company is $51. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $53. The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of an AAA-rated corporate bond. Value investing buy, sell, and close targets are derivatives of fair value.

Value Considerations

Other value considerations include the PE Ratio, the PEG Ratio, Book Value, and Tangible Book Value. For Wal-Mart Stores, Inc. the current twelve-month trailing PE Ratio is 19, the PEG Ratio is 2.1, Book Value is $27, and Tangible Book Value is $21.

Fair Warning

Fair warning means that the time for bidding has ended and an exchange is about to be concluded. Wal-Mart Stores, Inc. (NYSE: WMT) – FYE 01/2018 – OVERVALUED The stock is currently trading above my most recent $84 close target. Please See Linked PDF Worksheet