Wal-Mart Shares Rise on Analysts' Upgrades
Analysts upgraded their ratings on Wal-Mart Stores stock, citing the world's largest retailer's plans to curb its U.S. store growth and a $15 billion share buyback announcement.
Shares of the company were trading higher.
At Wal-Mart's annual shareholders' meeting on Friday, Chief Financial Officer Tom Schoewe said the company will cut the number of supercenters it plans to open this year by as much as 30% as it tries to boost sales at U.S. stores. He also announced that the company would buy back $15 billion of its own stock.
Analysts and investors, who had eagerly awaited those comments, have pushed Wal-Mart to rein in U.S. expansion plans as sales growth at its existing stores, known as comparable store sales, has slowed and it has saturated several markets.
"Given the underperformance of Wal-Mart's U.S. store base, this strategy should help improve performance through less cannibalization, more capital for reinvestment in existing stores, and increased selectivity in new store openings," wrote Wachovia analyst Peter Benedict. He raised his rating on Wal-Mart stock to "outperform" and its valuation range to $56 to $60 a share from $53 to $54 a share.
JP Morgan analyst Charles Grom said that following Wal-Mart's capital reallocation announcement, "we think it's reached an inflection point that is too hard to ignore."
"All in, we see a lot of pent up demand to own the stock and Friday's move should serve as the catalyst for some triggers to now be pulled," Grom wrote. He raised his rating on its stock to "overweight."
Supermarket stocks rallied following Wal-Mart's announcement on Friday, and its own stock, which has fallen 23% since Lee Scott was named chief executive in 2000, rose more than 4%.
HSBC also raised its rating on Wal-Mart to "overweight" citing "value investor attraction."