Goldman Sachs Lowers Wal-Mart's Rating

Goldman Sachs lowered its investment rating on Wal-Mart Stores Inc. (Bentonville, Ark.) yesterday — and dropped it from its list of recommended stocks — saying there was little room for the stock of the world's biggest company to rise.

Retail sales as a whole have been sluggish, and a report released earlier this week showed consumer confidence plunged to a nine-year low, as job worries and the threat of war with Iraq weigh heavily on sentiment.

Wal-Mart's October sales have so far matched its modest forecast for 2 – 4 percent same-store sales growth, but it acknowledged that Halloween candy and costume sales remained below expectations.

Sales comparisons get tougher for Wal-Mart in the coming months because last year's same-store sales growth reached 6.9 percent for the fourth-quarter and 7.8 percent for the first quarter of 2002. “Management thus faces an increasing challenge, coming up against these strong results in, if we are correct, a decelerating consumer spending environment next year,” said the Goldman Sachs statement. Goldman also pointed out that Wal-Mart's stock price (which dropped on news of the announcement to $53.80 per share) is expensive relative to those of its rivals. By comparison, Target Corp. (Minneapolis) ended the day at $30.20 a share.

Still, Goldman said Wal-Mart was well-positioned to weather a sluggish retail environment because of its rapid expansion into food. Even in a weak economy, said the Goldman statement, people still buy food.