After having less-than-stellar earnings, Wal-Mart Stores Inc. (NYSE: WMT) saw its shares drop to a new 52-week low on Tuesday. Despite this drop, one key analyst chose to look at the company from a slightly different angle, not from an earnings basis. Credit Suisse’s Michael Exstein weighed in on the retailing colossus.

After a steady rundown in share price for the first half of the year, Credit Suisse thinks that Wal-Mart’s dividend yield should limit further downside as investors wait for possible strategic changes to its business.

Comparable companies in the Credit Suisse coverage universe with significant dividend yields (current examples include: Kohl’s and Target) have historically seen support in their share price once the dividend yield reaches roughly 3%. This 3% dividend yield at current dividend payments implies a $65 share price, which is roughly 6% downside from current levels. Upside to Wal-Mart’s stock, the firm believes, is significantly higher given emerging signs of a healthier low-end consumer and more rational capital management. The company resumed repurchases of stock in the quarter, buying back $1 billion of shares, the largest in four quarters.

According to Credit Suisse:

Looking at the recent history of Kohl’s, Target and J.C. Penney (prior to its repositioning attempt), in spite of bad news (in some cases) the dividend yield did not seem to move above a roughly 3% ceiling. In the case of Kohl’s and Target, both had substantial dividend increases this year which further propelled the share price. We think that Wal-Mart, in conjunction with any possible change capital allocation, could also choose to grow its dividend at a more aggressive rate which would provide further upside to the share price based on yield histories of comparable retailers.

Credit Suisse concluded that while it is clearly disappointed with the company’s near-term profitability, the firm does believe that Wal-Mart is inching its way to make major strategic decisions in terms of ongoing capital allocation. With a nearly 3% yield, Credit Suisse thinks that these shares reflect the majority of the downside with no discount for strategic action.

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As a result, Credit Suisse has an Outperform rating for Wal-Mart with an $85 price target, implying upside of 23.2% from current prices.

Shares of Wal-Mart were down 0.7% to $68.97 on Wednesday afternoon. The stock has a consensus analyst price target of $78.50 and a 52-week trading range of $67.77 to $90.97.

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