Can Walmart (WMT) succeed in the Age of Amazon?
Walmart (WMT) is still successful in the age of Amazon. For example, Walmart Stores Inc. (NYSE: WMT) records a $31.778 billion gross profit on revenues of $124.894 billion for 4th Quarter 2018.
Hence, Walmart is making a lot of money in an industry Amazon Inc. (NASDAQ: AMZN) supposedly dominates. Notably, Stockrow gives Walmart a net income of $1.710 billion and an operating income of $4.986 billion for 4th Quarter 2018.
Interestingly, Walmart’s net income exploded during 3rd Quarter 2018. To clarify, Walmart recorded a net loss of -$861 million for 2nd Quarter 2018. Thus Walmart’s net income grew by $2.571 billion during the 4th Quarter.
Operating Expenses are falling at Walmart (WMT)
However, Walmart’s operating income fell by $764 million during 4th Quarter 2018. In particular, Walmart recorded an operating income of $5.75 billion during 3rd Quarter 2018.
The operating income did not because operating expenses are increasing at Walmart. In fact, the Walmart’s cost of revenue fell by $2.455 billion during 4th Quarter 2018.
In detail, Walmart records a cost of revenue of $93.116 billion for 3rd Quarter 2018. Conversely, Walmart records a cost of revenue of $95.571 billion for 2nd Quarter 2018.
Walmart (WMT) is Profiting from Technological Unemployment
Thus Walmart’s investments in technology could pay off with lower operating costs. Notably, one way technology is saving Walmart money is by eliminating the need for employees.
For instance, Walmart is eliminating 700 to 1,000 jobs at its Arkansas headquarters. In addition, Walmart cut 7,000 back-office accounting workers in its stores in 2016.
Hence, Walmart and its investors are profiting from technological unemployment. Interestingly, further job cuts are likely at Walmart because the company will deploy robot janitors in its stores.
Walmart is testing 360 janitorial robots in its stores, Bloomberg reports. In detail, the machines are robotic floors scrubbers built by a company called Brain Inc.
Robots are conducting inventory in some Walmart stores, Bloomberg claims. In addition, Walmart is testing robots that pull grocery orders in fulfillment centers and superstores, TechCrunch reports. A company called Alphabot builds the robots.
Why Walmart (WMT) is becoming more like Amazon
Therefore, Walmart is competing with Amazon by becoming more like Amazon. For example, Walmart is deploying vast numbers of robots like Amazon.
Naturally, investors will wonder if Walmart is generating vast amounts of cash like Amazon does. My answer to that question is Walmart is generating vast amounts of cash.
For example, Walmart reports an operating cash flow of $6.212 billion for 4th Quarter 2018, up from $5.934 billion in 3rd Quarter. In addition, Walmart records a free cash flow of $3.584 billion for 4th Quarter 2018, up from $3.477 billion in 3rd Quarter 2018.
Walmart (WMT) is generating more cash
However, Walmart’s cash flow is still considerably lower than Amazon’s. For instance Amazon (AMZN) reports a free cash flow of $6.061 billion and an operating cash flow of $8.588 billion for 3rd Quarter 2018.
Consequently, Walmart had $9.174 billion in cash and equivalents on 31 October 2018. However, that figure was down from $15.84 billion in cash and equivalents on 31 July 2018.
Moreover, Walmart still has far less cash than Amazon which had $29.765 billion in cash and short-term investments on 30 September 2018. Thus, Walmart still has a long way to go to match Amazon’s cash but it is heading there. For instance Walmart recorded $7.026 billion in cash and equivalents on Halloween Day 2017.
Under those circumstances, I believe Walmart’s capacity for cash generation could soon match Amazon’s. Obviously, dividend investors will be glad to hear that because Walmart pays a dividend.
How safe is Your Walmart (WMT) Dividend?
Therefore, the Walmart dividend will be safe for the foreseeable future.
On the positive side Walmart’s dividend grew by 1¢ during 2018. To clarify Walmart paid a 51¢ dividend on December 7, 2017, and a 52¢ dividend on 2 April 2018.
I think the Walmart (WMT) dividend is likely to grow in 2019 because of all the cash the company is generating. Thus, Walmart will continue its 43 year streak of dividend growth.
In addition, data like a dividend yield of 2.11%, an annualized payout of $2.08, and a payout ratio of 43.2% will continue. Thus Walmart is a great dividend stock that could get better.
Walmart (WMT) is still a Value Investment
I think Walmart is still a value investment because of the gross profit, growing cash, dividend and low price.
In particular, Walmart shares were trading at $95.81 on 5 December 2018. That made Walmart a bargain when compared to Amazon. For the record, Amazon (AMZN) stock was trading at $1,668.40 a share on the same day.
Walmart is still a value investment even though it is heading towards controversy. Walmart’s embrace of robots will heat up the debate over technological unemployment.
Walmart will face more criticism than Amazon because it is deploying robots in stores where the public will see them. Conversely, Amazon keeps its robots hidden from public view in fulfillment centers.
Despite the potential controversy over robots, Walmart is still a moneymaking company and a value investment. Hence, Walmart is a great stock to add to your portfolio for the age of Amazon.
