On March 26, Jim Cramer discussed Walmart Inc (NYSE:WMT) on Mad Money. He felt Walmart stock has fallen too much — it’s down 4.4% in the last month and 11.8% over the past three months — and it’s okay to buy.
At the very same time, I saw that quote, I was reading how Walmart and Target Corporation (NYSE:TGT) along with Amazon.com, Inc. (NASDAQ:AMZN) will be the main beneficiaries of a Toys “R” Us bankruptcy and closure.
The combination of the two suggests Walmart stock is a buy. Or is it?
I did a quick calculation of Walmart’s free cash flow yield. And it came to 6.4% — TTM FCF of $18.7 billion divided into an enterprise value of $291.9 billion — which is good but certainly not value territory. Value territory would be above 8%.
Before you run out and buy Walmart stock on its current weakness, you might want to consider these two services stocks. Both of these stocks have lost at least 10% in the past three months and possess a free cash flow yield that’s equal or better than Walmart’s.
Michaels Companies Inc (NASDAQ:MIK), the arts and crafts retailer, announced March 21 that it was closing all but three of its Aaron Brothers framing stores, a move that would cost it as much as $42 million.
That, along with soft earnings, has sent the stock price down 16% in the last three months — almost half of that in the past week.
Bain Capital took Michaels public in June 2014 at $17 a share. It’s up 17% in the four years since, hardly a return IPO buyers can be happy about.
Sure, the numbers for fiscal 2017 weren’t great — same-store sales increased by just 0.7% on a constant currency basis — but the fourth quarter did show signs of life.
Most importantly, its free cash flow yield at the moment is 6.7%. That is, $395.8 million divided into an enterprise value of $6.9 billion. And this likely to rise due to the benefits of corporate tax reform.
As MIK continues to work on its omnichannel approach to business, I see the financials getting stronger in 2018 and beyond.
It’s hard to believe that Trinity Industries Inc (NYSE:TRN) traded as high as $50 as recently as September 2014 — and then the wheels fell off the industrial stock best known for manufacturing railroad cars.
Although TRN managed to win back some of its 2015 stock losses in 2016 and 2017, up 17% and 37% respectively, it’s off 14% in the last three months putting a halt to any momentum it had.
I’ve always liked the fact it’s involved in a number of segments other than railway cars. But TRN has had a tough time shaking the railroad tag. That said, I did suggest in 2016 that a recovery in oil prices would help TRN recover.
Trinity is in the process of spinning off the company’s infrastructure assets so that investors can bet on these assets within a separate company or the company’s legacy rail-related businesses.
Trinity Industries free cash flow yield at the moment is 8.7%. That is, free cash flow of $657.2 million divided into an enterprise value of $7.1 billion.
Bottom Line on Walmart Stock
Frankly, if I were to buy any of the trio of stocks benefiting from the demise of Toys “R” Us, Amazon or Target would both be better choices in my opinion than Walmart.
Or, if you’re looking for a couple of value plays, Michaels or Trinity Industries might do the trick.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.