Wal-Mart Stores Inc WMT

Wal-Mart is now making better capital allocation decisions. The company is again reinforcing its everyday-low-price strategy through major price cuts, and is shifting capital to higher-return domestic small stores at the expense of lower-return international new-store openings. We have been arguing for such steps to begin to address the significant market share losses over the past three years to the dollar stores. Still, over the next decade we forecast EBIT margin declines because of the inevitable increased competition with Costco COST and Amazon AMZN, both of which have lower fixed assets bases and run their businesses at much lower profit margins. This, along with the ongoing share losses to the dollar stores, is the reason for our current negative moat trend for Wal-Mart.