Wal-Mart received Wednesday what appears to be its first analyst downgrade tied to allegations that the retailer’s executives paid bribes to Mexican officials.
Argus analyst Christopher Graja said the investigation into the potential corruption introduces “an element of uncertainty that is currently impossible to quantify.” Graja cut Wal-Mart’s rating to hold from buy.
Still, the stock has shed nearly 7 percent since the word of the incident surfaced in the New York Times. Meanwhile, more details regarding the probe continue to trickle out as Wal-Mart released the names of the teams both inside and outside the company that will be assisting in the investigation.
Those details are a reminder that this story will be in the headlines for a long time to come. It has raised numerous issues about the gray areas in the Foreign Corrupt Practices Act, which will continue to be debated due to the implications the law has for not only Wal-Mart, but for any company that does business outside the U.S.
Although Argus’ Graja acknowledges that the bribery claims are only allegations, he said “it is impossible for us to know what, if anything, the company’s investigation will find. Accordingly there is a new element of uncertainty confronting shareholders. There could be disruptions and distractions to management which could make it more challenging to raise profitability and return on investment and improve the efficiency of the company’s international operations.”
Earlier in the week, other analysts made comments similar to Graja’s remarks, and called the probe a “huge distraction,” but none had taken the step to adjust their rating on the stock.
Citigroup’s Deborah Weinswig, for example, clung to a $69 price target for Wal-Mart shares, which at the time represented a 7.5 percent gain.
In an article published by Seeking Alpha, WealthTrace’s Doug Carey argued that the pull back in Wal-Mart’s stock may provide a good entry point for long-term investors who could benefit from the company’s dividends. Carey has a long position in Wal-Mart.
Mario Gabelli, chairman and CEO of Gamco Investors, said from his point of view there are a lot of dynamics to consider regarding whether to own Wal-Mart stock.
Gabelli said his company owns a “little bit” of Wal-Mart stock in its funds. “We’re not in any rush to sell it. To the degree the stock drops from $63 to $57, we’ll take a fresh look and say ‘should we buy it?’”
Gabelli also suggested that Wal-Mart will around long after these issues are resolved.