Analysts upgrade Wal-Mart on plans to cut growth

NEW YORK (Reuters) - Shares of Wal-Mart Stores Inc.'s WMT.N rose nearly 3 percent on Monday after analysts upgraded their ratings on the world's largest retailer's stock, citing its plans to curb U.S. store growth and a $15 billion share buyback announcement.

A shopper checks merchandise at a Wal-Mart Supercenter on China's east coast in a file photo. Analysts upgraded their ratings on Wal-Mart's stock, citing the world's largest retailer's plans to curb its U.S. store growth and a $15 billion share buyback announcement. REUTERS/Claro Cortes IV

The upgrades came after Wal-Mart’s annual shareholders’ meeting on Friday, where Chief Financial Officer Tom Schoewe said the company will cut the number of supercenters it plans to open this year by as much as 30 percent as it tries to boost sales at U.S. stores.

He also said the company would buy back $15 billion of its own stock.

Analysts and investors, who eagerly awaited those comments, had urged Wal-Mart to rein in U.S. expansion plans as sales growth at its existing stores, known as comparable store sales, had slowed.

“Given the underperformance of Wal-Mart’s U.S. store base, this strategy should help improve performance through less cannibalization, more capital for reinvestment in existing stores, and increased selectivity in new store openings,” wrote Wachovia analyst Peter Benedict.

He raised his rating on Wal-Mart stock to “outperform” and its valuation range to $56 to $60 per share from $53 to $54 per share.

JP Morgan analyst Charles Grom said that following Wal-Mart’s capital reallocation announcement, “We think it’s reached an inflection point that is too hard to ignore.”

“All in, we see a lot of pent up demand to own the stock and Friday’s move should serve as the catalyst for some triggers to now be pulled,” Grom wrote. He raised his rating on its stock to “overweight”.

Supermarket stocks rallied following Wal-Mart’s announcement on Friday, and its own stock, which had fallen 23 percent since Lee Scott was named chief executive in 2000, rose more than 4 percent.

HSBC also raised its rating on Wal-Mart to “overweight” citing “value investor attraction.”

One analyst noted that though reining in U.S. growth may drive better same-store sales, it could imply slower domestic growth for certain packaged food companies like General Mills GIS.N and Del Monte DLM.N that rely on Wal-Mart for their growth.

“The bottom line is that fewer new stores means fewer new places to ship inventory regardless of consumption, and that is not a good thing,” wrote Michael Exstein of Credit Suisse. He rates Wal-Mart stock as “outperform”.

Wal-Mart shares were up 2.87 percent or $1.41 at $50.88 on the New York Stock Exchange.