Wal-Mart's Stock Shows Renewed Strength in First Quarter

Maybe all that Wal-Mart Stores needed was a little economic recession. Through the first three months of 2008, the company saw its stock climb at a double-digit rate, to close at $52.68 on March 31. That 11.3% gain outpaced all other major food retailers and has been followed by continuing gains through the first weeks of April. Analysts said the company has fixed some of the

BENTONVILLE, Ark. — Maybe all that Wal-Mart Stores here needed was a little economic recession.

Through the first three months of 2008, the company saw its stock climb at a double-digit rate, to close at $52.68 on March 31. That 11.3% gain outpaced all other major food retailers and has been followed by continuing gains through the first weeks of April.

Analysts said the company has fixed some of the merchandising problems that had slowed growth in recent years, particularly in nonfood areas like apparel and home furnishings. Wal-Mart also is an attractive option for shoppers looking to save money as inflation and a shaky economy sap consumer confidence, the analysts said.

“Near-term, Wal-Mart stands to benefit from the challenging consumer environment due to its strong value proposition,” said Deborah Weinswig, an analyst with Citigroup Global Markets, New York, in a recent report. She rated the company as one of her top stock picks for 2008.

Wal-Mart also recently raised its earnings outlook for the first quarter, citing better management of inventory, improved expense leverage and reduced shrink.

The new forecast calls for earnings per share of 74 cents to 76 cents, vs. previous guidance of 70 cents to 74 cents. For the first nine weeks of the first quarter, Wal-Mart said comparable-store sales were up about 2.6% in its U.S. business, including 2.1% at Wal-Mart Stores and 5.7% at Sam's Club.

“The very things that have stabilized the profitability of the business are internal improvements that have made the stores relatively more attractive,” said Edward Weller, an analyst with ThinkPanmure, San Francisco, who recently raised his rating on Wal-Mart's stock to “buy” with a price target of $68.

He agreed that Wal-Mart's top line could also benefit from the weakened economy, especially as low- to moderate-income consumers begin receiving their tax rebate checks.

As of last week, Wal-Mart's stock was trading at the highest level it has attained in more than three years. Investors seem to like the company's prospects much better now that the economy has weakened, and now that Wal-Mart's top U.S. rival in the discount sector, Target Corp., has had a more difficult time adjusting.

Target's stock slid more than 12% last year, and through the first quarter of 2008 was up only 1.4%. That reversed a five-year trend in which Target's stock price had consistently outperformed that of Wal-Mart.

Similarly, BJ's Wholesale Club saw its stock rise 5.5% in the first quarter, to $35.69, while longtime rival Costco saw a 6.9% decline.

Among traditional supermarket operators, the “big three” were all down for the first quarter.

Kroger fell about 5%, to $25.40, which was actually a better performance than either of its two largest rivals, Safeway and Supervalu.

Safeway was down 14.2% in the first quarter, to $29.35, and Supervalu, parent of the Albertsons banner, slid 20% in the first three months of 2008, to close at $29.98.

Whole Foods Market also took a hit in the first quarter, as its stock slid 19.2% to $32.97, the lowest it has been since 2003.