Retail behemoth Wal-Mart (NYSE:WMT) has graced us today with a dubious 52-week low. If this gets under and closes under $43.48, then Wal-Mart stock will be riding a true 52-week low. On a dividend adjusted basis the 52-week low close looks to be $43.13. Whether this closes there or doesn’t, you get the idea and have to think Wal-Mart investors are feeling duped again. This is just a day after the company disclosed the discourse from retail buyers would adversely impact forward earnings. We have to go back a year ago to reach that old $43.48 low (August 23, 2006 to be exact), and on that same day the DJIA was trading at 11,297.90 (versus 12,940-ish right now).
The subprime, Alt.A, and those with lower credit tend to make up more of Wal-Mart’s customers, and it is no secret that the lower half of the economy is in trouble. Even the top-half of the economy is not immune now and the question for it is if things will get much worse for them or if it will only be ‘not quite as good.’ The former would be an economic catastrophe and the latter sets the stage for a continued goldilocks economy that Larry Kudlow would be proud of.
Just a short couple months ago, we actually thought the mighty Wal-Mart was starting to show that it wanted to start treating its shareholders better than its employees. We laid out a ten point plan for the company to follow and it happens to coincide with some of what the company said it would do. The economy is to blame for this last major slide, but this is going to make us rethink Lee Scott’s role again if the company doesn’t figure out some of the company tricks that can be used to stabilize a stock. We recently lightened up on Mr. Scott needing to immediately leave after he got up and started doing more shareholder friendly initiatives, although we still think the stock would react favorably with a friendlier face man to ruin the show. Now this question of should he stay or should he go is likely just coming back up on those who gave him a pass. The call for him to go in December 2006 also coincided with the time that the stock started to come up a bit, so there is merit here for more activism.
All of the Wal-Mart and Scott initiatives have failed to materialize into a any solid reward for investors. We recently noted that he needed to get shares back into the $50.00 levels and that seems more than a stretch right now that the market has changed its tune even more. It has shown it will take on some leverage, has hiked its dividend, and has officially raised its share buyback plan. You cannot blame a soft economy on a CEO and you cannot pin a stock market malaise on a CEO. But if you are a shareholder and have a CEO in charge of your money, you want someone there who can at least help performance when times get good or stabilize. If not, we may have to go back to our initial thought that the company might need to break itself up.
This is beginning to look again like a stock that will underperform in a good market and so far wants to sell off more than the broad market. That may change through time, because at some point this stock will become a defensive stock compared to other high-flying retail chains that investors seek. But right now, things aren’t looking too good for Mr. Scott. We’ll be addressing his position and an impact if he would get out of the way, but if Lee Scott thinks things are going to get worse on a broader economic base from here then he’d be smart to just call it a day on his own volition. Hypothetically speaking, if Lee Scott would buy Wal-Mart stock and then announce his retirement he’d probably make more than the company would be willing to pay him to stay.
Jon C. Ogg
August 15, 2007
Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.
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