Research Project 2
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Research Project 2
Jeffrey Dozier
Franklin University
FINA-301-Q2WW: Principles of Finance
Instructor: Keith Zolkowski
October 27, 2023
2
Research Project 2
This research project will focus on Walmart and applying stock value techniques covered
in the textbook. Walmart is a renowned distributor of many products, including groceries, and
has become a one-stop shop for consumers. They have even branched out into the mobile and
online pick-up sector of business. They are of a different caliber than Amazon but have
succeeded with the process thus far.
According to Mergent Online (2019), Walmart’s current stock price closed at $161.77 and
is close to the three-year high of $165.25 set in September 2023. We will compare this to the
constant growth model, but first, we will understand what and how this is calculated. Using this
model gives us an intrinsic value of the company, makes it easier to compare similar companies
of different sizes, and does not account for market conditions, making the calculation easy. The
biggest drawback is that it does not account for brand loyalty, customer retention, and intangible
assets (Hayes, 2023). This can cause the values to be drastically different.
Using the following data provided by Mergent Online (2019): dividends per share TTM
$2.28, CAGR 1.9%, and given the assumption of a 10.5% discount rate, we can determine the
estimated value of a share of stock for Walmart using the formula below (Ross et al., 2021).
P
0
=
D
1
R
−
g
P
0
=
$
2.28
(
.105
−
.019
)
= $26.51
Symbo
l
Meaning
Given Data
P(0)
Estimated Value of Shares
Solved For
D(0)
Previous Payment of Dividends
$2.28
D(1)
Next Payment of Dividends
Unknown
R
Discount Rate
10.50%
g
Growth Rate
1.90%
All data retrieved from Mergent Online (2019).
3
As you can see, the current price of $161.77 and $26.51 are entirely different. This can be
evaluated as Walmart is significantly overvalued; however, as stated previously, this calculation
does not include market factors. I would not rely on this for investment decisions, but it can be
used to compare similar companies, like Target.
Some changes that can be made to close the difference to the actual market value are
increasing the growth rate (9.1%), decreasing the discount rate (3.3%), changing the dividend per
share (13.91), or a mixture of them. In summary, increase the numerator or decrease the
denominator.
The broker summary shows seven buy, five hold, and two sell recommendations. I will
compare these to the future estimated stock value and give my personal suggestions. Using the
estimation data provided by Mergent (2019) for 2024 (P1), 2025 (P2), and 2026 (P3), we can
determine what the stock price should be in the future. The formula for this and the results are
below (Ross et al., 2019).
P
t
=
PE ratio
∗
EPS
P
2024
=
$
23.28
∗
6.45
P
2025
=
$
23.28
∗
7.06
P
2026
=
$
23.28
∗
7.78
Past 3 years
Past 1 year
Past 3 months
Close
$161.77
$161.77
$161.77
Results
High
$165.25
$165.25
$165.25
P(2024)
$150.16
Low
$118.29
$136.97
$155.69
P(2025)
$164.36
Average
$143.59
$150.90
$160.57
P(2026)
$181.12
All data retrieved from Mergent Online (2019).
Symbol
Meaning
Given Data
P(t)
Price at given time
Solved For
PE
ratio
Benchmark Ratio
$23.28
EPS
Earnings per Share
2024E: 6.45
2025E: 7.06
2026E: 7.78
Your preview ends here
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4
Based on the next few years, the current price, and the history shown above, I would not
recommend investing in Walmart at the current time. The main reason is that the return on
investment could take two or more years, and many other companies could profit faster. Since
the stock is slightly overvalued, waiting until the price drops would be best. You could “buy and
forget” if you have time since growth is possible beyond one year. However, my thoughts are to
find something else with a better forecast of returns.
5
References
Mergent Online. (2019).
Walmart
. Franklin.edu. https://www-mergentonline-
com.links.franklin.edu/companydetail.php?compnumber=8865&pagetype=synopsis#
Ross, S. A., Westerfield, R., & Jordan, B. D. (2021).
Fundamentals of corporate finance
(13th
ed.). McGraw-Hill Education.
Hayes, A. (2023, June 13).
Gordon Growth Model (GGM) Defined: Example and Formula.
Investopedia. https://www.investopedia.com/terms/g/gordongrowthmodel.asp
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