Wal-Mart Rides to $73 on International Growth

Wal-Mart’s (NYSE:WMT) international operations segment continues to be the key growth driver for the company as its U.S. division has posted declining comparable-store sales for the eighth consecutive quarter. Wal-Mart competes with other big retailers like Target (NYSE:TGT), Costco (NASDAQ:COST), Amazon (NASDAQ:AMZN) and Best Buy (NYSE:BBY).

Our price estimate for Wal-Mart is near $73, implying just about 35% upside to the market price.

International Expansion is Key for Growth

With the sluggish growth in the developed markets, the developing markets have become the growth driver for Wal-Mart. This segment consists of retail operations in 14 countries generating 26.1% of net sales in 2011. Wal-Mart’s international segment has witnessed a substantial increase in its store count from 2,733 in 2007 to 4,557 in 2011. That roughly means an addition of 360 stores a year.

Geographically diversified operations also ensure a stable revenue stream for the company as they tend to provide diversification benefits in terms of inflation or rising commodity costs in a particular region. The growing middle class in emerging countries like India and China could provide substantial growth opportunities to Wal-Mart. Wal-Mart could employ its world-known cost saving and technologically tested logistics systems in these economies.

Wal-Mart has entered into a series of acquisitions in order to build its presence in these countries. It recently entered into a minority stake with Yihaodian, a popular online retailer in China. See Wal-Mart Invests in Chinese e-Commerce Market. The acquisition is aimed at further strengthening its presence in the region. In the African subcontinent, Wal-Mart acquired a 51% stake in Massmart, a leading African retailer that runs 9 wholesale and retail chains with approximately 288 stores in 14 countries in Africa. See Wal-Mart’s Outlook in Africa

See our complete analysis for Wal-Mart stock here