Walmart (WMT)

Total return at 5 years: -3.9%/year = -5.0% appreciation + 1.1% dividend. The target price ($88) is ex-dividend; the $6 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $89 · Multiples $75) is below the market price ($113).

Today — expensive, no margin of safety: at $113 trades ~50.3% above its value discounted to today (~$75); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$47.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($113) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (12.3%/year) above our base case (7.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$44.4 bn of owner earnings in year 5 (vs ~$34.9 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Utilidad atribuible (P/E). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Rolling grid: year-0 is the TTM closed July 31, 2026, built by levels from the second-quarter fiscal 2027 release (8-K of August 20, 2026): revenue of $735,840 million, operating income of $32,280 million, and reported attributable earnings of $22,076 million. That reported figure is normalized for two items the release itself quantifies and that do not describe the business's underlying trend: the net loss on equity investments and other is added back ($961 million pre-tax in the trailing year, against a gain in the prior year) and the $0.11-per-share benefit from a one-time tax matter in the quarter is removed, leaving normalized earnings of $21,935 million, i.e. a margin of 2.98%. A third item the release does not quantify in dollars is declared: second-quarter operating income includes tariff mitigation credits collected, which the company says it will reinvest in price during the second half — that is why year-0 operating income sits above its recurring level and year 1 is not projected by applying a growth rate but is instead anchored to the level guidance implies. The quarter's raised guidance sets fiscal 2027 net sales growth of 4.0% to 5.0% at constant currency on a base of $706,400 million, adjusted operating income growing 7.0% to 8.5% on $31,000 million, and adjusted earnings per share of $2.80 to $2.87 versus $2.64. Over the rolling window, year 1 combines the second half guidance implies — where the price reinvestment gives back the tariff benefit — with the following half, which laps a first half inflated by that same credit: hence revenue growth of 4.0% and earnings growth of just 4.5%, below the underlying 7% to 8% pace guidance itself describes. From year 2 onward earnings again compound at that underlying pace: revenue of around 4% plus the high-margin flywheel's margin expansion (advertising, membership, and marketplace), with net margin rising from 2.98% to 3.39%. Exit multiple of 22 times in the base case (adverse 18, favorable 26): the top of the band for a defensive business, a disciplined premium over a normal retailer's around 15 times, but well below today's 37 times. The P/E delivers equity directly; the $45,714 million net debt lives in the discounted-cash-flow lens. Buybacks reduce shares 0.7% annually, the net pace revealed by the outstanding-share series, and it falls short of cash-flow capacity. Capex is projected around 4.0% of sales, the level guidance raised from 3.5%.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $88 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $113, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $88 in 5 years plus $6 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $75. Against the current market price ($113), the margin of safety is -50.3% (trades above the maximum → a premium is paid) and the total return at that price would be -3.9% annually.

• A single business, a single multiple. It is valued on P/E over attributable net income (net debt + SBC + NCI → the P/E captures them). The flywheel is modeled as margin expansion, not as a separate piece (advertising is not broken out).
• The software-like multiple. At ~41× P/E, a software-like multiple over a retailer that grows revenue ~4-5%. The compression toward ~29× over five years neutralizes much of the earnings growth.
• The DCF is more severe. The DCF (at the risk-free rate, no-growth terminal) gives a value today well below the price: the normalized flow does not sustain a 40× multiple.
• Margin of safety at the end. At ~$113 the base return (~-4%) falls short of the required average return (10%): it compounds earnings, but the rich multiple leaves no margin of safety.
• The premium depends on the flywheel. The only justification for the multiple is that advertising and membership keep expanding the margin; the price already extrapolates that success.
• Sensitivity — the multiple. Value is highly sensitive to the terminal multiple: if the flywheel disappoints and the multiple re-rates toward the ~15× of a normal retailer, the drop is large.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (102%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Strong, predictable cash flow. Operating cash flow (~$41bn) is enormous and predictable; FCF ($15bn) is depressed by the automation capex (capex/D&A 1.9×), not by weakness.
• Return on capital. ROI ~15%, above the 10% bar; the high-margin mix improves it. Solid for a thin-margin retailer.
• Creates economic value. Yes — the return on capital exceeds the opportunity cost, and the high-margin flywheel widens the spread. Scale generates value per dollar reinvested.
• Material stock-based compensation. The SBC (~$3.6bn, ~24% of FCF) is material → it is valued on P/E (which expenses it), not on reported EV/FCF. The buyback ($8bn) more than neutralizes it.
• The flywheel not broken out. Advertising —the highest-margin business— is not reported as a separate figure in the filing (embedded in e-commerce); its magnitude comes from press releases, not the 10-K.
• Noncontrolling interest. There is NCI (Walmart de México, etc.), small and shrinking (Walmart bought out minority interests); the attributable net income is valued, not the consolidated.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Revenue is low-margin retail (volume by price, on everyday low prices over a scale-and-cost advantage) plus the high-margin flywheel: digital advertising (embedded in e-commerce sales — the filing does not break it out in dollars, only reports it grew 38% year over year in the quarter), membership (Walmart+, Sam's, with the fee growing 17%), marketplace, and services. E-commerce, at around $150,000 million and growing 23%, is the monetization vehicle. The gross margin rate rose 96 basis points in the quarter, though that improvement is affected by the tariff mitigation credits collected and does not yet describe a recurring level.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-jul-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real growth, not nominal. Revenue +4.7% is real (volume + e-commerce), but earnings grow much faster (~18%/year over two years) on the high-margin mix — partly with one-time items (the buyout of minority interests).
• Where the engine comes from. Walmart U.S. (~77% of segment operating income) pulled by e-commerce (+24%) and the advertising/membership flywheel. The margin engine is the high-margin ecosystem.
• Pulled by the flywheel. Earnings growth comes from margin expansion (advertising 70%+, membership), not from retail volume — operating income grows faster than sales.
• Realistic deceleration. The base projects earnings compounding ~7-8% (revenue ~4.5% + margin expansion from the flywheel), decelerating from the recent ~18% (which had one-time items).
• Reinvestment runway. Wide: the automation capex (~$27bn) lowers the marginal cost, and the high-margin flywheel has a long runway; the ROI (~15%) backs the reinvestment.
• Dependence on the unquantified flywheel. The bull case depends on advertising and the marketplace, whose figures are not broken out in the filing (they come from press releases, not the 10-K) — the magnitude must be taken with caution.

• Relevant in 10 years / recurrence. Yes — groceries and basic consumption are structural, recurring demand; Walmart is the quintessential value destination, defensive in a recession.
• Market share / cost. The world's largest retailer, with the lowest cost thanks to buying scale. It gains share, even among higher-income shoppers. A real cost moat.
• Pricing power. Limited in the core (everyday low prices is the promise), but real in the flywheel (advertising, membership). The power is in cost, not in price.
• Operating leverage. The high-margin flywheel provides leverage: operating income grows faster than sales. The counterweight: the thin margin of the core amplifies cost pressure.
• Capital cycle / competition. It competes with Amazon (e-commerce + advertising) and with the disruption of AI-powered shopping; scale and density are the structural defense.
• Behavior in a recession. Very defensive: in a recession, consumers seek value and Walmart gains traffic (a trade-down effect). Historically resilient.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net debt / EBITDA 1.0x
• ✓Interest coverage (EBIT / interest)17.4x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 102% of ROIC
• ✓Value creation (ROIC − 10% bar)+6pp
• ✓Malinvestment test (capex vs incremental ROIC)Productive investment (1.9x)
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 0.5% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Investment-grade balance sheet. Net debt ~$53bn against operating income of ~$30bn (~1.8×); ample interest coverage (~13×). A solid balance sheet for a scale retailer.
• Leases. On top of the debt, ~$16bn of operating leases (stores), already in operating income. Total leverage is moderate.
• Capex-heavy. The capex (~$27bn, capex/D&A 1.9×) depresses FCF; it is voluntary investment in high-return automation, not fragility. FCF ($15bn) covers the dividend.
• Cash generation. Operating cash flow (~$41bn) is enormous and predictable; it covers capex, the dividend and the buyback with structural headroom.
• Control stability. The Walton family (~44%) gives balance-sheet and long-term-strategy stability; zero solvency risk.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. High-return automation capex (~15% ROI) + aggressive buyback ($8bn) + aristocrat dividend. It returns slightly more than FCF; ROI discipline in the compensation.
• Alignment / skin in the game. Walton family ~44% (controlled), multi-generational horizon. The CEO with compensation tied to income/sales/ROI. Strong alignment, with the counterweight of family control.
• Capital return. Dividend Aristocrat (53 years, $0.99) + accelerated buyback ($8bn, a new $30bn authorization). Consistent and growing capital return.
• Succession / continuity. Internal and planned transition from McMillon to Furner (Feb-2026), with the Walton family as the anchor. Furner in his first year as CEO — execution to watch.

• It is not cheap — it is the opposite: at 37 times earnings, the multiple already prices in the success of the high-margin flywheel. Perception (quality compounder) matches reality; there is no discrepancy in its favor.
• The advertising and membership flywheel is real and growing (global advertising grew 38% in the quarter and operating income grows faster than revenue), and bulls argue the market still underestimates that engine — but the price already extrapolates much of that success.
• The quarter's result also carries a tariff mitigation credit that the company will give back in price during the second half; reading the 28.8% growth in operating income as recurring overstates the starting point.
• The Walton family's stability (around 44%) and the business's defensiveness (groceries) justify a premium, but not a software multiple on a retailer growing revenue 4-5%.

Walmart is an excellent business at a rich price, not a value opportunity. The high-margin flywheel is the only justification for paying more than double the multiple of a normal retailer; today's price already prices in that flywheel compounding. With no discrepancy between perception and reality in its favor, there is no margin of safety.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -11%/year (-45% total): the margin of safety protects the downside. The bull (+2%/year, +11% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Valuation / software-like multiple. At ~40× earnings over a retailer that grows revenue ~4-5%, any deceleration of the flywheel re-rates the multiple toward the ~15× of a normal retailer — the central risk.
• Tariffs. Walmart imports at enormous scale; new tariffs or trade restrictions (which management flags twice as a risk) compress the thin margin of the core.
• Amazon competition + AI. Amazon competes in e-commerce and advertising; AI-powered shopping tools (agentic) could disintermediate the customer — the 10-K names it for the first time.
• Cost inflation. Wages, healthcare and restructuring costs pressure the thin margin; operating leverage plays against it in a slowdown.
• Family control. The Walton family (~44%) controls the big decisions; the minority shareholder has little counterbalance, and the CEO transition is recent.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 16% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 7% at a PEG of 5.9 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 3% (EBIT/EV) + ROIC 16% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 12% vs our 7%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -13%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: cost advantage, efficient scale, intangibles, switching costs, network effects → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price demands 12% growth, far above our 7% — heroic assumptions.