Goldman drops Wal-Mart from recommended stocks

Retailer's shares costly compared with rivals'

October 31, 2002|By BLOOMBERG NEWS

NEW YORK - Wal-Mart Stores Inc., the world's largest retailer, was dropped from Goldman, Sachs & Co.'s "recommend list" of stocks because the shares are expensive relative to those of its rivals.

Goldman analyst George C. Strachan cut the rating to "market perform" in a report issued yesterday.

Wal-Mart's price-to-earnings ratio is about 1.7 times that of the Standard & Poor's 500 index - a nine-year peak, Strachan wrote.

The company's P/E-to-growth ratio is higher than those of rival general merchandisers, including Target Corp., Costco Wholesale Corp. and Kohl's Corp., he wrote.

The discount retailer's shares, which make up 4.5 percent of the Dow Jones industrial average, fell $2.67 to close at $53.80 on the New York Stock Exchange. The drop of 4.7 percent was their second-biggest decline this year.

Wal-Mart's sales increases, which last year outpaced the industry average, missed initial forecasts the past three months.

Fourth-quarter sales gains at Wal-Mart stores open at least a year may not match last year's as shoppers reduce spending, Strachan wrote.

Wal-Mart, which is based in Bentonville, Ark., expects same-store sales to increase 2 percent to 4 percent this month.

Wal-Mart's addition of groceries should help the company's sales because such products bring shoppers into stores more often, Strachan wrote.

Strachan didn't return calls for comment.

Sales are slowing even at retailers such as Wal-Mart, whose low prices drew customers during the recession.

"Everyone following retail right now is concerned by the slow economic data," said Keith C. Goddard, director of research at Capital Advisors Inc., whose $800 million in assets include about 595,800 Wal-Mart shares. "It's so big that whatever the economy's doing is going to impact Wal-Mart."

Consumer confidence plunged to a nine-year low in October, the Conference Board reported Tuesday. It was the fifth-straight decrease and reflects a decline in consumer expectations for the next six months.

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