Barclays Managing Director Explains The Reasons Behind Downgrading Wal-Mart

Stock of retail giant Wal-Mart Stores, Inc. WMT was downgraded earlier today by Barclays from Overweight to Equal weight, the bank also lowered its price target to $85 from $90.

On Thursday Wal-Mart Stores had issued a press release stating that the company would be increasing the minimum wage of its part-time and full-time employees to $9 per hour from April this year and $10 per hour from February, next year.

Barclays managing director Meredith Adler was on CNBC Friday to explain the reasons for her firm’s downgrading the stock.

“They are making lot of investments, it is not clear when the benefits will come, how big the benefits will be,” Adler said. “And then when you really dig into the numbers in terms of wage increases, they don’t seem for most employees that spectacular and what the company needs to do is improve morale and it’s just not clear this is going to do that.”

Adler continued,“ You could also make a argument that they need to be increasing labour hours, which is really not what’s in here and there’s probably a minimum wage increase coming and this is just get out in front of it.”

Why Aren’t They Doing Something Shareholder Friendly To Offset The Hit To Earnings Due To This?

“I don’t think there’s an option for them to cut costs, that’s what they did over the last couple of years by cutting labor and it back-fired,” Adler replied. “So, they are an efficient company in many ways, there’s not that much to cut. In returning cash to shareholder, they are sitting on a lot of cash, over $9 billion, that’s not clear unless perhaps they believe the stock is overvalued,”