We’re adding WMT back to the long side of our portfolio on today’s selloff. The print was in-line with our view for a tepid top line, but SG&A and below-the-line items making up for the difference. But to suggest that the stock is trading off 4% because of a perceived weak earnings quality is just plain silly. The 8-K added that “Inquiries or investigations regarding allegations of potential F.C.P.A. violations have been commenced in a number of foreign markets where we operate, including but not limited to Brazil, China and India.”
That’s bad enough news to anyone who knows the story, but it sounds a heck of a lot worse when you read out the acronym FCPA – Foreign Corrupt Practices Act. Not exactly a confidence-inspiring ring to it.
All that said, the company will spend money on these inquiries. Millions…tens of millions. Maybe even a hundred+. But the risk of WMT realizing that it has to pull out of a country or severely limit growth outside the US is not in the realm of what we think is realistic. Today alone, the market dinged WMT’s market value by ~$9billion, and pushed the stock within $2 of its long term TAIL support of $66.12.
Downside here is minimal, concerns will blow over, and there’s a big call option on WMT if oil rolls.
Call it financial engineering, and better tax planning. We'll call it better better relative EPS growth on a big liquid name.