Valuing Wal-Mart case study 2010

1. Question 2
   Analyze Wal-Mart’s historical earnings growth, dividend growth, and dividend payout ratio. What long-
   term trends emerge? How would you interpret them? (Hint: It might help to provide some graphs) Question 3
   Using the simplest DDM – the perpetual dividend growth model – provide an initial valuation of Wal-Mart.
   Please be specific about your assumptions.
2. 1. a) What share price to you estimate and how does it compare to current market values?
   2. b) Discuss how sensitive your model is to the assumptions you have made (provide a sensitivity
      analysis).
   3. c) Based on your findings in part a) and b) would you recommend buying shares in Wal-Mart based
      on your model?

Question 4

Using a three stage DDM provide a valuation of Wal-Mart. You may use the example shown in Exhibit 4
as a rough template for what to hand in but please keep in mind that this exhibit and the assumptions
made therein do not pertain to Wal-Mart itself. Please be specific about any assumptions that you made
in your model.

1. a) What share price to you estimate and how does it compare to current market values?
2. b) What assumption would you have to make about the long-term growth rate for the stock price to
   equal the analyst consensus price?
3. c) Provide a scenario analysis of your estimates. Specifically, compute the share price under the
   following nine scenarios:

2

Question 5

Value Wal-Mart using a market multiple approach based on the information given in the case. (I realize
that this question is somewhat ambiguous and there is no single right answer to it.) Be careful to justify
your choice of model as well as some of the assumptions you will make.

Question 6

Take a very careful look at the case exhibits. Do you think Sabrina Gupta’s use of DDM models is advisable?
If not, what alternative(s) would you suggest?