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Walmart Stays Neutral

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We maintain our Neutral recommendation on Wal-Mart Stores, Inc. (WMT - Free Report) following appraisal of its fourth quarter 2013 results.

Why the Reiteration?

Walmart posted better-than-expected fourth quarter earnings of $1.67 per share and beat the prior-year earnings by 10.6%, benefitting largely from a lower-than-expected effective tax rate in the quarter. Top-line growth coupled with cost savings also boosted earnings.

The fourth quarter fiscal 2013 results were ahead of the company’s earnings guidance range of $1.53 to $1.58 per share. Total revenue climbed 3.9% to $127.9 billion but lagged the Zacks Consensus Estimate of $129.2 billion. The company also posted positive comparable store sales.

Overall, we are impressed with the company’s size and scale of operations. The company’s significant exposure in the international markets makes it the largest retailer in the world. The company has 8,500 stores in 15 countries, under 55 different names. Walmart also continues to expand internationally and in the emerging markets through accretive acquisitions, new store growth and positive comparable store sales.

Further, Walmart has also been focusing on expanding its online business and has increased its share in Newheight Holdings Ltd, a holding company that owns Chinese Internet retailer Yihaodian, to approximately 51% during fiscal 2013. Walmart plans to grow its retail square feet and expand its e-commerce capabilities further in fiscal 2014.

However, Walmart expects decline in consumer spending going ahead as middle-class consumers struggle to cope with rising gas prices, delayed income tax refunds and higher payroll taxes. Additionally, Walmart remains exposed to unfavorable foreign currency translations due to its considerable international presence. Moreover, we remain cautious about the weak economy and rising costs, which keep us on the sidelines.

Walmart holds a Zacks Rank #3 (Hold). Other retailers that are presently doing favorable business include Harris Teeter Supermarkets Inc , Kroger Co. (KR - Free Report) and The TJX Companies, Inc. (TJX - Free Report) , all of them holding a Zacks Rank #2 (Buy).

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