Credit Suisse Slashes Wal-Mart Price Target To $85

In a report published Wednesday, Credit Suisse analysts maintained an Outperform rating on Wal-Mart Stores, Inc. WMT, while reducing the price target from $95 to $85, after the company faced a really challenging quarter. Wal-Mart reported US comps of +1.1 percent, short of expectations, although traffic was positive for the second consecutive quarter. The company delivered a mixed performance in its international business. Sam's Club generated slow sales growth, with investments in fuel pricing unable to drive positive traffic. In the report Credit Suisse noted, "Overall these disappointing results point up the challenges confronting the company. The question remains primarily how to sustainably turn around the core US business. And in so doing will WMT refocus management attention away from lower-return, non-core businesses, towards its most productive but challenged domestic business?" Wal-Mart's apparel and home categories grew by mid-single digits. The company gained market share with "more relevant product assortments, activewear, and greater emphasis on national brands," the analysts explained, while adding, "The general merchandise category (primarily entertainment) remained under pressure, in part due delays related to the West Coast Port Dispute." This year the company will be making significant investment, not in expansion, but in people and systems. "We continue to think that the company will need to simplify and refocus on the core US business in order to sustain its industry leadership," the analysts added. The EPS estimate for 2016 has been reduced from $4.98 to $4.80.
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