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ANALYSTS STAY BULLISH ON WAL-MART DESPITE STOCK STAGNANCY.

Byline: Meredith Derby

NEW YORK-Despite Wal-Mart Stores Inc.'s stagnant stock price over the past five years, investment analysts say now is the time to snap up its shares as several positive catalysts stand to push the stock upward, according to HFN's sister publication, Women's Wear Daily.

After enjoying a solid run-up from 1997 to 1999 -- hitting an all-time closing high of $69.44 per share on Dec. 27, 1999 -- the stock's 200-day moving average has remained "range bound," hovering between $50 to $60 over the past five years.

The shares closed 2004 essentially flat, and, at around $53, the stock is currently down about 3 percent relative to the Standard & Poor's 500.

It's not surprising that 2004 was a flat year for Wal-Mart's stock: The retail environment was not overly favorable to all the deep discounters. For Wal-Mart, double-digit, year-over-year increases in gas prices crimped spending by the company's core, low-income consumer. Those shoppers may also have been drawn toward dollar stores, or to Target Corp.'s increasingly competitive prices, analysts have said.

In addition, community protests against the opening of new Wal-Mart supercenters, as well as sexual discrimination and labor-related lawsuits, continue to hang over the retailer's reputation.

But analysts speculate that Wal-Mart's renewed focus on apparel as well as international expansion opportunities could trigger profit growth in 2005, which in turn could energize the retailer's stock price.

Wal-Mart did not return calls seeking comment for this article.

Ulysses Yannas, an analyst at Buckman Buckman & Reid, said the retailer has "re-emphasized profits, and we can see that in the way they went through the process of Thanksgiving [by not initially cutting prices]."

Meanwhile, as the intense success of high-end retailers pushed luxury retail stocks into lofty territory -- the share price of Nordstrom Inc., for example, having risen 150 percent in the last two years -- stocks like Wal-Mart have become undervalued relative to the rest of the retail industry, experts said.

So analysts think the stock is due to see decent gains, especially since luxury stocks are projected to top out this year. Twelve-month target prices for Wal-Mart shares range from mid-$60 to $70.

"Over the next year [Wal-Mart shares have] a very good chance of outperforming the S&P 500," predicted Chris Graja, securities analyst at Argus Research, who has a "buy" investment rating on the stock.

Paul Nolte, director of investments at Hinsdale Associates, said Wal-Mart's stock "is the cheapest its been now since 1998," currently trading at 19.6 times expected fiscal 2004 earnings of $2.40 a share, according to Thomson First Call. That's down significantly from the roughly 50 times earnings the stock saw in the late-'90s bubble era.

International expansion in China is another way Wal-Mart can boost profits and please investors. Wal-Mart International plans to open 155 to 165 units in existing markets in fiscal 2005.

And worldwide expansion via acquisitions of other smaller players is also a possibility, since the company's balance sheet remains strong, Weinswig noted. Wal-Mart closed the most recent third quarter ended Oct. 31 with $4.6 billion in cash and cash equivalents, up from $3.3 billion in the prior year.

Of course with the stock market, nothing is a given and bulls can often turn bearish on a sector, or even on a particular stock. For example, Hinsdale Associates' Nolte recommends playing Wal-Mart's stock as "a pure hedge."

"The problem you have with Wal-Mart is the size. How big is this company going to be able to grow?" Nolte said. "If it does break out of its trading range and gets into the mid-$60s to mid-$70s over the next two to three years, that would be evidence of the success of international growth."

But if oil prices rise sharply again, as they did in 2004, Wal-Mart's core customer could again feel pressured.

Said Nolte: "Wal-Mart is the poster child of oil prices. If they go up, Joe Schmoe the consumer is not going to Wal-Mart. But Joe's high-class friend has got his Hummer, and he will go to the Tiffany store and buy a bauble for his wife."

Caption(s): International expansion in China is one way Wal-Mart can boost profits and please investors. Wal-Mart International plans to open 155 to 165 units in existing markets in fiscal 2005.
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Comment:ANALYSTS STAY BULLISH ON WAL-MART DESPITE STOCK STAGNANCY.
Author:Derby, Meredith
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Geographic Code:1USA
Date:Jan 24, 2005
Words:716
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