Why Walmart Stock Is Getting Cheaper

walmart (NYSE:WMT) has been making a lot of news lately as the world’s largest retailer. On Tuesday, the company reported fourth-quarter earnings that significantly exceeded analysts’ estimates. It’s also the 51st consecutive year the company has raised its dividend, up 9% this quarter.

Also on Tuesday, Walmart announced it was acquiring smart TV and electronics company Vizio (NYSE:VZIO) to strengthen its media business, Walmart Connect. In addition, a 3-week split was implemented on February 23, so each share currently held automatically becomes 3 shares, and the price per share falls to one-third of the current price.

Investors were pleased with the move and Walmart’s earnings results, with shares rising about 4% to $177 per share in Tuesday morning trading. Let’s see how these changes could impact investors.

Walmart defies expectations and acquires Vizio.

Walmart capped off a strong year with sales rising 5.7% year-over-year to $173 billion in a strong fourth quarter that ended Jan. 31. For the full fiscal year, the retailer’s sales rose 6% to $648 billion. Walmart’s operating profit rose 30% to $7.3 billion for the quarter and 32% for the full year to $27 billion.

Additionally, adjusted earnings per share (EPS), excluding special items, hit $1.80 for the quarter, up 5.3% year-over-year and well above the consensus of $1.64 per share. For the full fiscal year, Walmart’s adjusted EPS was $6.65, up 5.7% from the previous year.

The large retailer’s U.S. net sales rose 3.4% to $117 billion in the quarter, including a 17% increase in e-commerce sales. Walmart International reported a 17.6% increase in net sales for the quarter to $32.4 billion, with global e-commerce sales up 23% year-over-year.

In addition to e-commerce growth, Walmart saw a 33% increase in global advertising business revenue, including a 22% increase in Walmart Connect.

Walmart Connect is the company’s multi-channel advertising division that connects advertisers and customers. The Vizio acquisition announced Tuesday is intended to strengthen that business by essentially giving Walmart ownership of the Vizio SmartCast operating system, a streaming platform built into Vizio smart TVs.

So not only will Walmart have a major TV brand, but more importantly, the SmartCast system will provide it with a solid platform to promote and advertise its products. This is seen as a way for Walmart to increase profits in this high-margin business.

“We believe the combination of these two businesses will be impactful in redefining the intersection of retail and entertainment,” Seth Dallaire, senior vice president and chief revenue officer of Walmart U.S., said in a statement.

The size of this transaction amounts to approximately $2.3 billion (approximately 2.3 trillion won).

Stock split: Cheap but worth it?

Another big news from Walmart happening just a few days from now is a 3-for-1 stock split. This means shareholders will receive two additional shares for each share they hold as of market close on February 22nd. So, if you own one share of stock worth $180, after the split you will own three shares worth $60 per share. As mentioned above, the new share price will be one-third of the closing price on Thursday.

Walmart has conducted nine stock splits in its history, with the last one occurring in 1999. With the stock currently trading at an all-time high of about $177 per share, the company felt the time had come to prop up its stock price by conducting another stock split. The price is accessible to employees and investors.

“Sam Walton believed it was important to keep stock prices within a range that enabled all employees to purchase a full share of the stock,” Doug McMillon, Walmart president and CEO, said in a statement. “Given our growth and plans for the future, we felt now was a good time to split the stock and encourage employee participation for the next few years.”

So starting next week, Walmart stock will become much more accessible to investors, trading between $50 and $60 per share. But some investors may wonder whether Walmart is a better value at a cheaper entry point.

The large retailer still looks like a pretty good deal, with a price-to-earnings ratio (P/E) currently around 28, down from 44 a year ago. Considering the company’s outlook for the current fiscal year, a future P/E of 24 also seems reasonable. Walmart is demanding a 3-4% increase in net sales and 4-6% increase in operating profit this fiscal year. Additionally, adjusted EPS is estimated to have increased from $6.65 in the last fiscal year to between $6.70 and $7.12 before the stock split.

Walmart appears to be a solid choice for now, as it has generally performed well even in slow-growing markets and economies.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.