Sterne Agee Initiates Coverage On Wal-Mart

Sterne Agee initiated coverage of Wal-Mart Stores, Inc. WMT Monday with a Neutral rating and $70 price target.

Analysts led by Charles Grom felt that the stock “is arguably expensive, but the consumer “stapleness” of the model and the dividend yield (~2.5 percent) – keep the stock afloat.

Grom observed that Wal-Mart “appears to have looked to preserve margins in lieu of driving foot traffic – potentially moving away from its “productivity loop” mantra. As a result, the company has opened the door for a number of concepts/ competitors to gain market share – largely the dollar stores, niche grocers, and online players.

The analyst report also found that Wal-Mart is losing its price edge against competitors while international markets have also proven difficult.

On the upside, lower gas prices will put more disposable income into the hands of consumers in time for the holiday season, according to the report.

Grom also praised the company for embracing e-commerce but noted that such investments will take time to turn a profit and will post operating losses of $1 billion+ for the next two years.

The report concluded that the Wal-Mart “story has some strong selling points, but an equally compelling bear case as well.”

The firm estimated FY2015 EPS at $5.00 and assumed 14x earnings to establish the $70 price target.

Wal-Mart Stores, Inc. traded at $76.04 in the aftermarket, down 0.31 percent.