Wal-Mart Stores Inc. saw the biggest declines in the Dow Jones Industrial Average on Monday after JPMorgan analysts said it would continue to lose market share in key U.S. regions, becoming just the latest to see weakness ahead for the world's biggest retailer.
In a report from Charles Grom and other JPMorgan analysts, the rating for the world's biggest retailer was cut to "Neutral" from "Overweight." Earnings estimates for the fourth quarter and 2011 were shaved slightly below the consensus Wall Street estimate and the stock's target price was lowered by $5 to $54. That suggests a share-price decline of 3 percent from Friday's close.
JPMorgan analysts were not the first to forecast trouble at Wal-Mart recently. Deutsche Bank downgraded the retailer from "Buy" to "Hold" on Feb. 2, while UBS took it from "Buy" to "Neutral" on Feb. 10.
Wal-Mart got a boost from the global downturn that began in December 2007, as wealthier shoppers "traded down" to its cheap basic items. But it ceded that advantage starting in the summer of 2009. Over the last year, revenue at Wal-Mart stores open at least a year — a key retail measure — has fallen by an average 0.75 percent each quarter, according to the International Council of Shopping Centers, while its major competitors benefited.
JPMorgan said Monday that Wal-Mart, based in Bentonville, Ark., faces several problems in the U.S. that it doesn't feel the company is addressing: market share in grocery items, a key category; the loss of low-income customers who increasingly seem to prefer dollar and drug stores, and the potential loss of more affluent shoppers, who may return to more expensive stores as the economy, for them, stabilizes.
Inventories are also too high, and free cash flow is being hit by Wal-Mart's international acquisitions, JPMorgan said.
Shares fell 89 cents, or 1.6 percent, Monday to $54.80, a one-month low. Shares have ranged from $47.77 to $57.90 in the past 12 months.
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