Buy Report February 5, 2009 Ticker Price Indust ry Sector WMT $46.

42 Discou nt Variety Stores Servic e

G th row
S kP eH to toc ric is ry
1W 1 eek H h ig 1W 1 eek L ow 1W 1 eek C ng ha e 1 ha e S&PP500 Index 1 Week C ng S & 500 (S 111 &P ) B eta

V lu tio M a u s a a n e s re
1. 1 1 1. 1 1 1 11 .1 11 .1 11 .1 1

R evenues 1111 11 1 C 1,11 urrent P/E Wal-Mart $11 R .11 evenues 1111 11 1 T ilingP/E 1,11 ra $11 .11 G a G rowth 1 1 PE R tio .1% -1 % Net Incom 1111 1,11 E R enue (ttm .11 V/ ev ) e 11 V/ B D ) Net Incom 1111 1,11 E E IT A(ttm e 11 G rowth 1.1% 11 -11% .11 E 1111 PS 11 .1 11 .1 E 1111 PS 11 .1 G rowth 1 111 .111

D id n s iv e d
D ividend D ate D R te iv. a D Y iv. ield Ja ry 11111 nua , 11 .1 11 .1%

Bull Story
Financial Strength and Stability Dominant Market Position Asset Play: own about 70% of properties Innovation Efforts

Bear Story
Economy Changes Discretionary Spending May Not be Embraced Overseas Large Debt

Recommendation: Buy 700 Shares Table of Contents of WMT

Company Overview 3 Company History Ali Kaiser Marcie Lou Kate Wright

3 Recent History 4 Management 4 Segments 5 Sales by Segment 5 Business Model 6 Competitors 7 Macroeconomic Report 8 Industry Trends 8 SWOT Analysis 9 Ownership Information 10 Analyst Recommendation 11 Investor Relations 11 Peer and Industry Analysis 12 Ratio Analysis 13-16 Pro Forma Income Statement 17 Pro Forma Assumptions 18 Relative Valuation 18 Discounted Cash Flow 19 Two Stage Dividend Discount Model 21 Recommendation 21 Income Statement 22 Balance Sheet 23 Statement of Cash Flows 24 Valueline 25 2|Page

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Company Overview
Wal-Mart Stores, Inc. is a worldwide retailer focusing on helping customers save money so they can live better. Wal-Mart is the largest retailer in North America, selling to more than 200 million people in the United States and helping them save more than $2,500 a year. As the worlds largest employer, Wal-Mart employs more than 2 million associates with more than 1.4 million of those being employed in the United States1. In the United States there are currently over 4,100 stores in and another 3,100 stores in Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico and the United Kingdom2. Using worldwide suppliers, Wal-Mart operates under an everyday low price (EDLP) pricing philosophy so that their customers can rely on low prices and dont have to wait for products to go on sale to make a purchase. During fiscal year 2008 Wal-Mart also returned over $11 billion to its shareholder through share repurchase programs and dividends. Wal-Mart has continually increased dividends since the first dividend paid in March 19743.

Company History
1972: WMT goes public 1983: Sams Club first store was opened

1962: WMT opens its first store in Rogers, Arkansas

1988: First WMT Supercenter was opened 1989: There are 1,402 WMT stores and 123 Sams Club stores 1990: Became the nations #1 retailer 2003 and 2004: Fortune magazine ranked WMT in its top spot of Most Admired Companies
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Wal-Mart Stores, Inc. 2008 Annual Report Corporate Facts: Wal-Mart By the Numbers Wal-Mart Stores, Inc. 2008 Annual Report www.walmart.com

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Recent History

February 3rd: Fortune ranks WMT as a dividend you can count on February 2nd: WMT tests diesel-electric trucks as a future investment that will help the environment and be profitable to the company February 2nd: Bharti Wal-Mart Private Limited announced in India that its self-service wholesale stores will be named BestPrice Modern Wholesale December 30th: WMT announces their $9 Environmentally Sustainable inhaler December 28th: WMT begins to sell the iPhone 3G October 27th: Two stores reopen in Arkansas to show WMTs new design for their stores October 22nd: WMT requires supplies to become more environmental by issuing certain guidelines

Management

S. Robson Walton- Chairman Walton is the son of Wal-Mart founder Sam Walton and has held the position of Chairman of the Board of Directors since 1992. Eduardo Castro- Wright- Vice Chairman Castro-Wright joined the Wal-Mart family as part of Wal-Mart de Mexico in 2001, serving as both President and CEO. He joined Wal-Mart US in 2005 and most recently became Vice Chairman in 2008. In February 2006 Fortune magazine described Castro-Wright as one of the sharpest executives in the land. Thomas M. Schoewe- Executive VP and Chief Financial Officer Schoewe has held his current position since 2000 and is responsible for treasury, tax, accounting and control, auditing, business planning and analysis. In 2005 he also became the financial executive for all three Wal-Mart segments. Rollin L. Ford- Executive VP and Chief Information Officer

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www.walmart.com Wal-mart Senior Officers 5|Page

Ford has overseen the global information systems portion of the company since 2006. Ford started with Wal-Mart in 1938 and has worked his way up from logistics organization to the executive offices. Thomas A. Mars- Executive VP and General Counsel Mars has headed the legal department of Wal-Mart, which handles domestic and international legal matters, since May 2002. Before joining Wal-Mart, Rose was an associate at the Rose Law Firm where he worked for Hilary Clinton. Charles M. Holley, Jr.- Executive VP Finance and Treasurer Holley joined Wal-Mart in 1994 and has had many roles within the company over the years. He started in the international division of the company, moving to Senior VP of Finance and ultimately to his current role of Executive VP Finance and Treasurer in January 2007.

Segments7
Wal-Mart Stores Wal-Mart stores offer price leadership on top-quality brands to help consumers save money and live better. In the United States, Wal-Mart stores consist of: Wal-Mart Discount, Wal-Mart Supercenters, Wal-Mart Neighborhood Markets and Marketside. Discount stores average 107,000 square feet and feature general value priced merchandise. Supercenters average 187,000 square feet allow for one-stop shopping with general merchandise and a full grocery store all under one roof. Neighborhood Markets average 42,000 square feet and are designed for those consumers who want a quick stop for groceries and basic merchandise. Marketside is in its pilot stage and specializes in offering fresh, delicious meals at affordable prices. In fiscal year 2008, sales in the Wal-Mart stores increased 5.8 percent as result of the strength of grocery, health and wellness, and entertainment sales. Wal-Marts $4 prescription program shows strong signs of growth as customers gain loyalty. In the U.S., financial services at Wal-Mart stores have also seen strong growth. This division offers money order, transfers, check cashing and bill payment services which saved customers over $300 million in fiscal year 2008. Wal-Mart International Wal-Mart international focuses on selling top-quality brands at low prices to consumers across the globe, while at the same time targeting culture specific products. New sales from Wal-Mart International stores during fiscal year 2008 increased 17.5 percent from the previous year, partly from strong outcomes from stores in the United Kingdom, Brazil, China, and Argentina. During the fiscal year WalMart opened its 3,000th international store. International stores, such as those in the United Kingdom and Canada, provide strong operating cash flows to the company,
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Wal-Mart Stores, Inc. 2008 Annual Report

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while stores in Brazil and China show tremendous growth. Wal-Mart International has strong joint ventures with local companies which provide a clear path to market leadership.

Sams Club Sam Walton started Sams Club with the intention of appealing to small businesses and helping them lower the cost of doing business. The Sams Club segment focuses on low-cost, efficient operations where it can offer its members exceptional value on brand-name merchandise at members only prices8. As a result, sales grew 6.7 percent for fiscal year 2008. In April 2008, Sams Club celebrated its 25th anniversary with the debut a new logo.

Sales by Segment9

Wal-Mart Stores located in the United States accounted for 64% of Wal-Marts sales in FY2008. Sales generated from Wal-Mart International increased slightly from FY2007 while Sams Club, which operates about 713 stores worldwide, genereated 12% of Wal-Marts sales.

Business Model
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Wal-Mart Stores, Inc 2008 Annual Report Wal-Mart Stores, Inc. 2008 Annual Report 7|Page

In all three of their business segments, Wal-Marts main focus is brining quality goods to the consumer at a price they can afford. From top to bottom, Wal-Mart takes to heart their mission of saving people money so they can live better. By using suppliers around the world and close to their stores in addition to their emense buying power, Wal-Mart is able to keep prices continually low.

Competitors
Target is the nations second largest discount chain, following WalMart. There are about 1,685 Target stores and SuperTarget stores in 48 states. They also operate an online business, Target.com. Target offers its customers more upscale and fashion forward products than their competitors. In 2004, Target sold its Marshall Fields and Mervyns department stores after trying to turn them around.10

Costco is the largest wholesale club operator in the nation. There are more than 53 million cardholders in 40 states, Puerto Rico, Canada, Japan, Mexico, South Korea, Taiwan, and the UK. There are roughly 545 membership wholesale stores. There are three different membership options that their customers have to choose from: the Business membership ($50), the Gold Star membership ($50), and the Executive membership ($100). The Executive membership allows their customers to purchase products and services which include: insurance, mortgage services, and long distance phone service.11

BJs Wholesale Club is the third largest membership wholesale club in the nation. The company has about 15 million members and 175 locations in 15 states. Roughly 7,300 products are sold, that consist of food products, apparel, house wares, office equipment, small appliances, and gas. One thing that sets BJs apart from their competitors is the companys aim at individual retailers rather than small businesses.12
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www.target.com www.costco.com 12 www.bjs.com 13 www.money.cnn.com

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Macroeconomic Report

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With the current economic recession, record numbers of jobs are being cut. The planned number of job cuts announced is the highest it has been in seven years. The unemployment rate is expected to rise from 7.2% to 7.5%. With such drastic cutbacks and layoffs, the retail sector was hit the hardest this past holiday season. Recently, 98% of metropolitan areas announced an increase in their unemployment. Businesses are hurting so badly right now, there just is not a need for workers. Oil has dropped more than $100 since the summer months due to the slowing economy. There is some speculation that oil may only continue to fall due the slowing demand of oil because the economy is slowing more than expected. In order to help restore trust in the financial system, President Obama is capping the cash compensation for executives of companies that are receiving government aid. The annual cap will be $500,000. It has also been reported that eight in ten cities are hurting financially. The current economic recession is making it difficult for cities to meet their financial needs. In fact the National League of Cities has reported that 84% of cities have reported some difficulties, which makes it the highest percentage since 1985. Many are hoping for the economic stimulus package to give some relief.

Industry Trends

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The superstore and warehouse clubs industry includes roughly 3,000 stores and a combined revenue of $200,000 billion. Warehouse clubs are typically able to resist some economic downturn due to the low pricing and high volume sales. Many other businesses depend on this. The industry is expected to endure the current economic situation. These superstores are very appealing to price sensitive customers; along with the fact that they sell consumer essentials such as food and beverage. This will help to protect
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them from the hurting economy. Due to their competitive price strategies, it is believed that the superstores should see sales growth in the upcoming year. Demand from small business owners are expected to slow, which could in turn hurt club store operators profitability. At the end of the 2008, the industrys stores saw improved year-over-year same store growth. However, many of these figures exclude gasoline sales and foreign exchange impacts. It is expected that companies with international operations will not benefit from foreign currency exchange rates as they did this past year.

SWOT Analysis15
Strengths
FY08 Sales- Wal-Mart saw sales in excess of $100 billion during the fourth quarter of FY08 which was a first for a global retailer. Dividends- Since Wal-Mart declared its first dividend in March 1974, divdends have continually increased. Smart Acuqisitions- Wal-Mart has a history of international acquisitions and joint ventures that ultimatley lead to increases in net sales. Inventory management- The company has taken steps to better manage their invetory which leads to an increase in the gross margin as a result of decreased markdowns.

Weaknesses
Taxes Payable- The company is currently sitting on $50 million to $200 million of taxes that may be payable in the next twelve months (although that was in FY08). Currency Exchange Changes- Due to the nature of their business, Wal-Mart is has exposure to changes in exchange rates. Legal Proceedings- Wal-Mart is involved in numerous legal proceedings. Although they have been recorded according to FASB standards, Wal-Mart could still have to make payouts to Plaintiffs.

Opportunities

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Wal-Mart Stores, Inc 2008 Annual Report

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$4 Prescription Program- In September 2006 Wal-Mart began offering 300 prescriptions for $4 which continues to gain loyalty from customers. New Slogans/Logos- During FY08 Wal-Mart launced a new marketing campaign Save Money. Live better and Sams Club redesigned its logo. These changes have the possibilty of drawing in customers that were previously not targeted. Additional International Locations- Wal-Mart International is a growing part of the Wal-Mart family. Notable new transcations and joint ventures in China and India are sure to attract new customers. Innovation- Wal-Mart is currently teaming up with Dell to test a computerservice and home-theatre installation in 15 Wal-Mart stores.

Threats
Other Discount Stores- Wal-Mart faces competition from discount retailers on a domestic and international level as well as internet-based retailers. New Stores- As Wal-Mart continues to expand they may face declining sales in exisiting stores.

Ownership Information
Shares Outstanding Institutional Ownership Top 10 Institutions Mutual Fund Ownership 5%/ Insider Ownership Float

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3.92 Bil 37.96 % 12.30% .89% .86% 99.15%

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Analyst Recommendation
Standard and Poors: Strong Buy

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In the future consumers will continue to focus on low-to-mid price merchandise. Standard and Poors believes WMT is well positioned to gain market share and they predict that net sales will increase 2.8% driven by a 2% increase in same-store sales.
N .o o f R tin s a g B uy B uy/H old H old W kH ea old S ell T ta o l 1 0 9 5 0 0 2 4 %o f T ta o l 4 2 3 7 2 1 0 0 10 0 1M . o P io r r 9 1 1 4 0 0 2 4 3M s o. P r rio 8 9 6 0 0 2 3

Argus: Buy They believe that the economy is not out of the woods yet but that WMT is well positioned for this environment and that consumers will become more frugal as they try to rebuild their savings. As management continues to focus on trying to be fast, clean, and friendly they will likely attract higher income shoppers. New Innovative ideas such as the computer-service and home-theatre installation are being tested and will hopefully bring in new opportunities.

Investor Relations: Q & A

We tried several times to reach Wal-Mart Investor Relations but each time we were unsuccessful. Because of the size of the company, we had to go through an automated system which directed us from one machine to another. When we finally got a hold of a person it was either a voicemail or they directed us back to another automated system. We hope to continue to reach IR and provide an addendum before our presentation.

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Under current economic situations have you seen a change in Sams Club membership?

What growth do you foresee in annual dividends?

How many stores you forecast opening in the next fiscal year?

Wal-Mart Is opening more Neighborhood Markets, what growth do you predict in this line of stores?

Wal-Mart is focusing on making its suppliers more environmentally friendly, how does this play into its low-cost philosophy?

What steps have been taking to improve inventory management?

What contributed to WMTs significant increase in operating expenses over the past year?

How do you think WMT will perform compared to its competitors during the current economic situation?

Wal-Mart offers 300 prescriptions for $4, do you plan on expanding this service in the future?

Peer and Industry Analysis18

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This Chart allows investors to compare WMT to its competitors and its industry by looking at a projected 5 yr growth rate, current P/E, and a projected 1 yr EPS Growth rate.
Mre ak t 5 y - r 1yES - r P C p in G w a ($ ro th C rre t G o th u n rw M n ) R te(% F P illio s a ) Y /E (% ) 17 3 8 ,5 7 1 .0 3 1 .2 4 7 .1 10 5 6 ,9 9 1 .0 1 1 .6 2 1 .2 3 ,3 7 9 6 1 .0 2 1 .1 2 4 .4 3 ,1 0 3 9 1 .0 2 1 .6 5 1 .9 1 2 7 1 .0 2 1 .6 2 1 .7 6 2 ,3 9 1 0 8 .0 1 .6 2 8 .1 1 ,9 7 9 8 1 .0 2 1 .7 5 1 5 7 7 ,3 3 7 .0 1 .4 2 1 .7 above 0 36 2 1 .0 0 8 .7 1 .7 0 5 ,2 9 5 6 1 .8 0 1 .9 2 9 .5 every

WMT is well the peer average in category except EPS. According to this chart, WMT is well position for the future with the highest 5 yr growth rate. It is also at the top of its peers for current P/E. Costco and Wal-Mart appear to be about equal with Wal-Mart having a higher projected growth and Costco having a higher current P/E.

C ma y o pn W l-M rt a a Procter &G ble am C / C rem rt C VS a a orp C a olg te-Pa olive lm W lg a reen C o Kim berlyC rk C la orp C o ostc S L ara ee Prestig B e rands H olding s P e A ea e er vrg

Ratio Analysis
Profitability
P fita liltyT n s ro b re d
O e a gM r in p r tin a g P o M r in r fit a g R tu no A s ts e r n se R tu no E u e r n q ity F 20 Y 08 F 20 Y 07 F 20 Y 06 5 3 .3 % 5 4 .4 % 5 2 .6 % 3 6 .3 % 3 4 .2 % 3 0 .6 % 7 9 .7 % 7 4 .4 % 8 3 .1 % 1 .7 % 9 0 1 .3 % 8 3 2 .1 % 1 2

C p ra eP om a tiv rofita ility A a s b n ly is

Pe er W T M CS OT B J TT G A ea e F 2 0 vrg Y 08 F 20 Y 08 F 20 Y 08 F 20 Y 07 4 4 .6 % 5 3 .3 % 2 2 .7 % 2 7 .1 % 8 2 .3 % 2 5 .7 % 3 6 .3 % 1 7 .7 % 1 6 .3 % 4 0 .5 % 6 0 .6 % 7 9 .7 % 6 0 .2 % 6 0 .0 % 6 9 .3 % 1 .2 % 6 0 1 .7 % 9 0 1 .9 % 3 5 1 .5 % 2 3 1 .6 % 8 1 14 | P a g e

O e a gM r in p r tin a g P o M r in r fit a g R tu no A s ts e r n se R tu no E u e r n q ity

Over the past three fiscal years profitability trends have remained steady. WMT currently exceeds the peer average on all profitability measures. In FY2008 WMT had the greatest return per dollar invested. Although TGT has higher operating and profit margins they dont have the same low cost structure that WMT employs. The operating margin for WMT slightly decreased in FY2008 due to the consolidation of operations with Seiyu and Sonae. In the UK, shifts toward premium food products lead to higher profit margins, as did improved sourcing in Brazil.

Liquidity
C r e tR t u r n a io Q ic R t u k a io

L u T ns iq ity re d
F 20 Y 08 F 20 Y 07 F 20 Y 06 0 1 .8 0 0 .9 0 0 .9 0 1 .2 0 6 .2 0 4 .2

C p ra eL u A a s om a tiv iq ity n ly is
Pe er W T M CS OT B J TT G A ea e F 2 0 vrg Y 08 F 20 Y 08 F 20 Y 08 F 20 Y 07 1 75 .1 2 0 1 .8 1 7 .0 1 1 .2 1 0 .6 0 1 .5 0 1 .2 0 0 .5 0 8 .2 1 3 .0

Although WMT does not meet the peer average standards when it comes to liquidity, they use their cash efficiently not only to fund their operations but also to facilitate stock repurchases and the payment of dividends.

C r e tR t u r n a io Q ic R t u k a io

Debt Management
D b M n gmn T n s e t a a e e t re d
D b o o lC p e t-T -T ta a . D b o q ity e t-T -E u T e In r s E r e im s te e t a n d A e a eP y e tP r d v r g a m n e io F 20 y 08 F 20 y 07 F 20 Y 06 0 2 .3 0 1 .3 0 3 .3 0 6 .4 0 4 .4 0 0 .5 1 .2 2 3 1 .4 3 1 1 .8 5 9 2 .2 9 6 2 .8 9 2 2 .3 9 6

C p ra eD b M n g m n A a s om a tiv e t a a e e t n ly is
WMT is currently running the middle among
P r ee W MT C S OT B J TT G A era e F 2 0 v g Y 08 F 20 Y 08 F 20 Y 08 F 20 Y 07 0 5 .2 0 2 .3 0 9 .1 0 07 .0 1 0 0 .5 0 2 .4 0 6 .4 0 4 .2 0 08 .0 1 0 9 in .9 2 .1 4 9 1 .2 2 3 NA 5 .1 2 9 8 5 .1 2 .8 9 8 2 .2 9 6 2 .3 6 1 2 .2 5 5 3 .7 8 1 the

D b o o lC p e t-T -T ta a . D b o q ity e t-T -E u T e In r tE rn d im s te es a e A e g P y en P rio v ra e a m t e d

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other retailers in their peer group when it comes to debt management. While the company does carry a significant amount of debt, it is nothing new. WMT currently plans to refinance existing long-term debt as it matures. Although WMTs times interest earned ratio has decreased over the past three years they are still clearly covering their interest payments.

Asset Management
A s tM n g m n T n s s e a a e e t re d
T ta A s tT r o e o l s e un v r F edA s tT r o er ix s e un v In en ryT r o e v to u n v r A e a eC lle tio P rio vrg o c n e d F 20 Y 08 F 20 Y 07 F 20 Y 06 2 2 .3 2 .3 2 6 .2 4 4 .0 4 8 .0 4 8 .1 1 .6 0 5 1 .2 0 4 9 0 .6 3 2 .5 2 7 .9 3 1 .0

C parative As et Manag ent Analys om s em is

P eer WMT C T OS B J T GT Avera e F 2 0 F 2 0 F 2 0 F 2 0 g Y 08 Y 08 Y 08 Y 07 T l Asset T ota urnover 2.91 2.32 3.50 4.40 1.42 F ixedAss T et urnover 4.52 4.04 5.06 6.37 2.62 InventoryT urnover 11.07 10.65 14.08 10.46 9.07 Avera e C g ollectionP eriod 25.04 3.52 3.77 46.47 46.39
WMT stays in line with its competitors when it comes to generating sales from assets. The company clearly surpasses its peers when it comes to collections. The majority of WMTs accounts receivable comes from insurance companies that work with Wal-Mart pharmacies and receivables from marketing or incentive programs. WMT has increased its inventory turnover over the past three fiscal years and is in line with its peers, showing strength within the industry.

DuPont Analysis
Net Profit RE O S le a s 2 .1 % = 1 2 3 4 .6 % * 1 .3 % = 8 3 3 7 .2 % * 1 .7 % = 9 0 3 0 .4 % * 1 .9 % = 3 5 1 .5 % = 2 3 1 .6 % = 8 1 1 1 .8 % * 1 9 .3 % * 4 3 .6 % * S les a T ta A s ts o l se 2 4 * .2 2 8 * .2 2 9 * .2 3 3 * .4 4 1 * .3 1 8 * .3 T l Assets ota T ta E u o l q ity 2 .6 2 6 .4 2 3 .5 2 5 .2 2 9 .0 2 1 .9

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Other Analysis S lesPer S Ft a q/ F 20 y 08 F 20 Y 07 W T M $ 3 .8 4 0 4 $ 2 .5 47 0 CS OT NA NA B J $ 4 .0 4 2 0 $ 5 .0 45 0 TT G $ 9 .6 2 5 1 $ 0 .3 31 5

Between 2007 and 2008 WMT was the only the company that increased their sales generated per square foot in stores. This is a good sign for WMT that they using their sales space more effectively which will help them weather the economic storm with greater ease than their competitors.

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Pro Forma Income Statement

Wl- atP oF r aIn o eSae e t a Mr r o m c m t t m n
20 06 Rvn e ee us Toa Re n e t l ve u G whinRe n e ro t ve u s Co s a de p n s st n x e se Co s o Sa s st f le % o Re n e f ve u G ss Proit ro f O GA ,S, & % o Re n e f ve u O e ain P o p r t g r fit EB G whRae IT ro t t G ss M rg % ro a in In e e t r st Ine st N t t re , e % o Re n e f ve u EB T In m T x s co e a e Toa Ta s t l xe t xe b a s/e t In m fr m n . O e co e o co t p r M o y Ine st in rit t re % o Re u f vn e In o ef m o t O e c m ro c n. p r Lo f m is. O e n to t x ss ro d p r, e f a % o Re u f vn e N tIn m e co e Sh re O t a d g a s ust n in EPS $ ,8 3 5 0 3 .0 % 3 9 $1 3 1 ,7 2 ($ 2 .0 ) 34 0 -0 0 .1 % $1 0 1 ,4 8 ($ 7 .0 ) 17 0 -0 6 .0 % $1 3 1 ,2 1 48 18 $ .6 2 8 $ ,3 5 6 6 3 .5 % 3 6 $2 0 1 ,6 3 ($ 2 .0 ) 46 0 -0 2 .1 % $2 7 1 ,1 8 ($ 9 .0 ) 84 0 -0 6 .2 % $1 8 1 ,2 4 46 18 $ .7 2 1 $ ,9 8 6 0 3 .2 % 4 0 $3 9 1 ,2 0 ($ 0 .0 ) 46 0 -0 1 .1 % $2 8 1 ,8 4 ($ 5 .0 ) 13 0 -0 4 .0 % $2 3 1 ,7 1 47 02 $ .1 3 3 $ ,6 2 7 5 3 .6 % 3 2 $5 0 1 ,1 7 ($ 5 .5 ) 48 1 -0 1 .1 % $4 4 1 ,6 9 ($ 0 .2 ) 50 0 -0 2 .1 % $4 4 1 ,1 9 34 94 $ .5 3 9 $ ,4 0 8 2 3 .6 % 3 2 $6 2 1 ,6 4 ($ 0 .5 ) 54 5 -0 1 .1 % $6 2 1 ,1 0 ($ 5 .4 ) 50 2 -0 2 .1 % $5 6 1 ,5 9 34 94 $ .9 3 5 $ ,2 5 9 6 3 .6 % 3 2 $8 9 1 ,2 3 ($ 5 .2 ) 55 0 -0 1 .1 % $7 3 1 ,7 8 ($ 0 .6 ) 65 8 -0 2 .1 % $7 3 1 ,1 2 34 94 $ .3 4 4 $ 0 9 .3 1 ,1 5 4 3 .6 % 3 2 $0 3 2 ,1 0 ($ 1 .9 ) 60 5 -0 1 .1 % $9 1 1 ,5 9 ($ 6 .4 ) 66 9 -0 2 .1 % $8 5 1 ,8 2 34 94 $ .7 4 8 $ ,1 8 1 7 0 8 .3 % $7 3 1 ,5 5 $ ,5 9 1 2 0 4 .4 % $8 6 1 ,9 8 $ ,7 8 1 9 0 7 .4 % $0 9 2 ,1 8 $ ,7 2 1 9 0 3 .4 % $2 5 2 ,7 9 $ ,9 2 1 7 0 3 .4 % $5 4 2 ,0 4 $ ,1 0 2 7 0 3 .4 % $7 5 2 ,5 8 $ ,3 8 5 2 8 .2 0 3 .4 % $0 2 3 ,3 5 $ 3 ,6 9 27 4 7 .1 % 6 4 $4 5 7 ,4 2 $5 3 5 ,7 9 1 .8 % 7 6 $8 1 1 ,7 3 8 7 .1 % 6 0 .0 % $ 6 ,1 2 24 5 $ 1 $4 9 8 ,4 8 $4 0 6 ,0 1 1 .3 % 8 6 $0 9 2 ,4 7 9 3 .5 % 5 8 .8 % $ 8 ,5 5 26 1 7 .6 % 5 4 $2 8 9 ,2 4 $0 8 7 ,2 8 1 .5 % 8 6 $1 9 2 ,9 6 7 1 .3 % 5 1 .8 % $ 1 ,1 6 36 6 7 .8 % 5 5 $ 0 ,6 5 10 6 $6 1 7 ,1 3 1 .2 % 8 6 $4 5 2 ,5 1 1 .6 % 1 2 5 9 .8 % $ 4 ,9 9 37 0 7 .8 % 5 5 $ 1 ,7 1 10 7 $3 5 8 ,7 5 1 .2 % 8 6 $7 1 2 ,0 6 1 .0 % 0 4 5 9 .8 % $ 8 ,8 9 32 3 7 .8 % 5 5 $ 2 ,8 3 11 9 $2 6 9 ,1 4 1 .2 % 8 6 $9 2 2 ,7 9 1 .0 % 0 4 5 9 .8 % $ 2 ,2 6 41 7 7 .8 % 5 5 $ 3 ,1 1 14 3 $ 0 ,4 7 11 1 $ 0 $2 1 3 ,7 3 1 .0 % 0 4 5 9 .8 % $ 1 ,1 1 32 0 9 7 .7 % $ 4 ,6 0 38 5 1 .7 % 1 1 $ 7 ,7 9 38 9 8 5 .6 % $ 1 ,8 0 46 3 1 .0 % 0 4 $ 5 ,6 0 48 8 1 .0 % 0 4 $ 0 ,7 2 54 3 1 .0 % 0 4 $ 5 ,4 7 55 0 1 .0 % 0 4 20 07 20 08 E 09 20 E 00 21 E 01 21 E 02 21

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Pro Forma Assumptions

Revenue Growth Forecast We forecasted the revenue growth at 10.04% by averaging the growth rate from 2006 to 2008. Although current economic conditions may concern some in regards to this growth rate, the first three quarters in FY 2009 indicate sustained growth at around 10%. Also, with the companys competitive pricing it should help bring in more consumers as they become more price sensitive due to current economic conditions. Cost of Sales In order to forecast cost of sales, we based it on the percentage of total revenue and took the average which calculated to be 75.85%. Tax Rate We used a tax rate of 33.62% for 2009 thru 2012. We took the average tax rate from years 2206 to 2008. Interest Expense We forecasted interest expense by taking the past three years as a percentage of revenue and averaging them.

Relative Valuations
Historical P/S Pro Forma Sales/Sh are

Current

5 yr. Avg

Projecte d P/S

0 5 .4

0 .6
Target Price Potential Upside Historical P/E

0 .6

9 .9 1 8
55.19

1 .8 % 8 9
Pro Forma EPS

Current

5 yr. Avg

Projecte d P/E

1 .3 4

1 .8 9
Target Price

1 .8 9 Potentia U l pside
Historical P/BV

3 4 .4
68.11

4 .7 % 6 3
Pro Forma BV/Shar e

Current

5 yr. Avg

Projecte d P/BV

2 6 .6

3 5 .4
Target Price

3 5 .4 Potentia U l pside

1 .4 7 6
60.24

2 .7 % 9 7

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Historical P/CF Pro Forma CF/Share

Current

5 yr. Avg

Projecte d P/CF

1 .7 0 7

1 .7 1
Target Price

1 .7 1 Potentia U l pside

5 .5
64.35

3 .6 % 8 3

Discounted Cash Flow

D co n e C shF wM d l- T oSt g M d l is u t d a lo o e w a e o e 20 06 Toa Re e u 3 2 0 .0 t l v n e$ 1 ,1 1 0 G wh ro t EB IT Ta Rae x t 9 7 .7 % $ 8 1 .0 1 ,7 3 0 3 .0 % 3 9 20 07 $ 4 ,6 0 0 3 8 5 .0 1 .7 % 1 1 $ 0 9 .0 2 ,4 7 0 3 .5 % 3 6 $ 3 1 .2 1 ,6 8 1 $ ,4 9 0 5 5 .0 $ 5 6 .0 1 ,6 6 0 ($ 0 .0 ) 97 0 $ ,3 8 1 4 1 .2 20 08 $ 7 ,7 9 0 3 8 9 .0 8 5 .6 % $ 1 9 .0 2 ,9 6 0 3 .2 % 4 0 $ 4 7 .0 1 ,4 3 6 $ ,3 7 0 6 1 .0 $ 4 3 .0 1 ,9 7 0 ($ ,0 0 0 3 2 .0 ) $ ,8 3 6 8 7 .0 E2 0 09 $ 1 ,8 0 2 4 6 3 .4 1 .0 % 0 4 $ 4 5 .3 2 ,5 1 1 3 .6 % 3 2 $ 6 9 .1 1 ,2 7 6 $ ,5 0 8 6 6 .4 $ 4 5 .0 1 ,3 0 0 ($ ,7 0 4 1 1 .0 ) $ 0 1 .6 1 ,2 7 8 $ ,3 1 2 9 3 .2 $ 4 2 .7 4 ,4 6 1 E2 1 00 $ 5 ,6 0 9 4 8 8 .1 1 .0 % 0 4 $ 7 1 .2 2 ,0 6 6 3 .6 % 3 2 $ 7 3 .3 1 ,9 3 9 $ ,2 9 6 7 1 .1 $ 4 5 .0 1 ,3 0 0 ($ ,8 1 3 1 8 .7 ) $ 2 8 .2 1 ,6 4 8 $ 0 7 .8 1 ,5 8 3 E2 1 01 $ 0 ,7 1 9 5 4 3 .6 1 .0 % 0 4 $ 9 2 .7 2 ,7 8 0 3 .6 % 3 2 $ 9 3 .9 1 ,7 3 1 $ ,9 3 6 7 4 .9 $ 4 5 .0 1 ,3 0 0 ($ ,0 0 5 2 7 .6 ) $ 5 9 .5 1 ,3 8 2 $ 1 2 .3 1 ,7 8 4 E2 1 02 $ 5 ,4 6 5 5 5 0 .7 1 .0 % 0 4 $ 2 1 .4 3 ,7 3 6 3 .6 % 3 2 $ 1 1 .1 2 ,7 5 9 $ ,7 1 3 8 4 .5 $ 4 5 .0 1 ,3 0 0 ($ ,2 8 5 2 7 .5 ) $ 8 8 .2 1 ,3 5 7 $ 2 8 .3 1 ,7 8 2

EB IT(1- Ta ) $ 2 2 .8 x 1 ,5 0 7 Dp c t n e re iaio (FCIn ) v (W v CIn ) FCFF PVo FCFF f $ ,6 5 0 4 4 .0 $ 4 3 .0 1 ,5 0 0 ($ 4 .0 ) 51 0 $ ,1 6 7 3 7 .8

Va in 2 1 lue 03

V= FF*(1 g (FC +))/(W C ) AC -g 4 8 8 .7 299 PV of T V 2 2 0 .1 756

PV 0 -1 9 2 446 1 4 2 .7 PV of T V 2 2 0 .1 756 T l ota 3 6 3 .9 192 c sh a 56 59 debt -4 0 8 37 PV of E quity2 9 2 .9 743 S resoutsta 2 ha 3 nding .9 B 7 .2 1 9 1 85

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Growth rate: We used two constant growth rates for our discounted cash flow valuation. For the 2009 thru 2010 we used a growth rate 10.04% which is the average growth rate between years 2006 and 2008. Four our long term growth rate we chose a very conservative rate of 5%. Historically, Wal-Mart has grown roughly 10% annually. We chose 5% to keep our valuation very conservative. We believe this rate will also account for any future volatility that may arise. Tax Rate: We kept the same tax rates we had calculated in the Pro Forma Income Statement. We took the average of tax/ebt rate to calculate our future tax rates. Depreciation: To forecast depreciation we took the % of depreciation for years 2006 thru 2008 and averaged them. FCInv: The most recent annual report had a very detailed section in regards to managements expectations on fixed capital investment. Due to the fact that their expectation were consistent with years 2006 to 2008 we took the average of what management expected in FY2009 and carried that into the future. WCInv: In order to forecast WCInv we took WCInv as a percentage of revenue and averaged the three known rates. This gave us a rate of -0.41%. WACC: We obtained our WACC from Standard and Poors. We had originally calculated our own WACC, but with such low 10 year treasury bill rates, our WACC was unrealistically low. We researched past WACC calculations, and found the Standard and Poors calculation to be a more realistic measure.

Two Stage Dividend Discount Model

Tim Va e lue 1D ) (1 2D ) (2 3D ) (3 4D ) (4 5D ) (5 5D ) (5 C lc tion a ula .9 (1 3 )^ 5 .1 2 1 .9 (1 3 )^ 5 .1 2 2 .9 (1 3 )^ 5 .1 2 3 .9 (1 3 )^ 5 .1 2 4 .9 (1 3 )^ 5 .1 2 5 (.9 (1 3 )^(1 7 (.0 5 7 5 .1 2 5 .0 ))/ 9 -.0 ) D or V(t) Present Va (t) lue 1 8 .0 0 9 .9 1 2 .2 1 2 .0 1 8 .3 1 5 .0 1 6 .5 1 9 .0 1 7 .7 1 2 .1 7 .6 5 4 .0 8 2 5 .2 3 9

We decided to use the Dividend Discount Model to value WMT due to the continuous increase in dividends since 1974. We first calculated the average dividend growth over the past five years which equaled 13.2%. We used this as our growth rate for the first five years in our evaluation to compute D(t) and eventually Present Value. In 21 | P a g e

order to bring it back to the present value we used WACC which was 9.5%. For the long term dividend growth rate we assumed 7% based on the more recent years economic situation as well as a decrease in the dividend growth. This model valued WMT at $53.29; its an upside of 15% which is outside of the 10% safety zone. The dividend discount model isnt significant to WMT due to the low dividend rate but we decided to use it because WMT has issued dividends since 1974.

Recommendation
We recommend buying a 700 shares of WMT stock. After careful evaluation, we have completed anumber of valuation indicating WMT is currently undervalued. With competitive pricing strategy, they are expected to stay competitive within the current economy. They have consistently declared dividends since 1974. WMT has consistently outperformed the S&P 500, so moving money from SPDRS to WMT would provide a safe holding for SMF funds.

Income Statement
Consolidated Statements of Income

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Net sales Membership and other income Costs and expenses: Cost of sales Operating, selling, general and administrative expenses Operating income Interest: Debt Capital leases Interest income Interest, net Income from continuing operations before income taxes and minority interest Provision for income taxes: Current Deferred Income from continuing operations before minority interest Minority interest Income from continuing operations Loss from discontinued operations, net of tax Net income Net income per common share: Basic income per common share from continuing operations Basic loss per common share from discontinued operations Basic net income per common share Diluted income per common share from continuing operations Diluted loss per common share from discontinued operations Diluted net income per common share Weighted-average number of common shares: Basic Diluted Dividends declared per common share

$ 374,5 4,273 26 378,7 99 286,5 70,28 15 8 21,99 6 1,863 240 (305) 1,798 20,19 8 6,916 (8) 6,908 13,29 (406) 0 12,88 (153) 4 $ 12,73 1 $ 3.17 (0.04) $ 3.13 $ 3.16 (0.03) $ 3.13 4,066 4,072 $ 0.88

$ 344,99 3,658 2 348,65 0 264,15 64,001 2 20,497 1,549 260 (280) 1,529 18,968 6,276 89 6,365 12,603 (425) 12,178 (894) $ 11,284 $ $ $ $ 2.92 (0.21) 2.71 2.92 (0.21) 2.71

$ 308,94 3,156 5 312,10 1 237,64 55,739 9 18,713 1,171 249 (242) 1,178 17,535 5,932 (129) 5,803 11,732 (324) 11,408 (177) $ 11,231 $ $ $ $ 2.73 (0.05) 2.68 2.72 (0.04) 2.68

4,164 4,168 $ 0.67

4,183 4,188 $ 0.60

Balance Sheet
(Amounts in millions except per share data) Current assets: Cash and cash equivalents Receivables Inventories Prepaid expenses and other $ 5,569 3,654 35,180 3,182 $ 7,767 2,840 33,685 2,690

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Total current assets Property and equipment, at cost: Land Buildings and improvements Fixtures and equipment Transportation equipment Property and equipment, at cost Less accumulated depreciation Property and equipment, net Property under capital lease: Property under capital lease Less accumulated amortization Property under capital lease, net Goodwill Other assets and deferred charges Total assets LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Commercial paper Accounts payable Accrued liabilities Accrued income taxes Long-term debt due within one year Obligations under capital leases due within one year Total current liabilities Long-term debt Long-term obligations under capital leases Deferred income taxes and other Minority interest Commitments and contingencies Shareholders equity: Preferred stock ($0.10 par value; 100 shares authorized, none issued) Common stock ($0.10 par value; 11,000 shares authorized, 3,973 and 4,131 issued and outstanding at January 31, 2008 and January 31, 2007, respectively) Capital in excess of par value Retained earnings Accumulated other comprehensive income Total shareholders equity Total liabilities and shareholders equity

47,585 19,879 72,533 28,026 2,210 122,64 (28,77) 8 3 93,875 5,736 (2,594) 3,142 16,071 2,841 $ 163,51 4 $ 5,040 30,370 15,799 1,016 5,913 316 58,454 29,799 3,603 5,111 1,939

46,982 18,612 64,052 25,168 1,966 109,79 (24,408) 8 85,390 5,392 (2,342) 3,050 13,759 2,406 $ 151,58 7 $ 2,570 28,484 14,675 706 5,428 285 52,148 27,222 3,513 4,971 2,160

397 3,028 57,319 3,864 64,608 $ 163,51 4

413 2,834 55,818 2,508 61,573 $ 151,58 7

Statement of Cash Flows

Capital in (Amounts in millions except per share data) Number of Commo n Excess o f Accumulate d Other Retained Earnings Total

Comprehensive income: Net income Other comprehensive income: Foreign currency translation Net changes in fair values of derivatives Minimum pension liability

11,23 1 (1,69) (1) 1 51

11,23 1 (1,69) (1) 1 51

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Total comprehensive income Cash dividends ($0.60 per share) Purchase of Company stock Stock options exercised and other Balance January 31, 2006 Comprehensive income: Net income Other comprehensive income: Foreign currency translation Net changes in fair values of derivatives Minimum pension liability Total comprehensive income Adjustment for initial application of SFAS 158, net of tax Cash dividends ($0.67 per share) Purchase of Company stock Stock options exercised and other Balance January 31, 2007 Comprehensive income: Net income Other comprehensive income: Foreign currency translation Minimum pension liability Total comprehensive income Cash dividends ($0.88 per share) Purchase of Company stock Stock options exercised and other Adoption of FIN 48 Balance January 31, 2008

(74) 5 4,165

(7) 1 41 7

(104) 275 2,59 6

1,053

(2,51) (3,46) 1 9 49,10 5 11,28 4

1,584 6 (15) (120) (39) 5 4,131 (4) $ 41 3 $ (52) 290 2,83 4 (2,80) (1,76) 2 9 55,8 18 12,7 31

2,50 8

1,21 138 8 (3,58) (7,48) 6 4 (160) 57,3 19

(166) 8 3,973 $

(1) 1 7 39 7 $

(19) 384 0 3,02 8 $ 3,86 4 $

9,590 (2,51) (3,58) 1 276 0 $ 53,17 1 11,28 4 1,584 6 (15) 12,85 (120) 9 (2,80) (1,82) 2 290 5 $ 61,5 73 12,7 31 1,21 138 8 14,0 (3,58) 87 (7,69) 6 385 1 (160) $ 64,6 08

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