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Wal-Mart Credit Score Shows Promise to Bond Buyers

By Sally Maison
Published: Friday, December 4th, 2009

Microsoft, Exxon Mobil, and Wal-Mart are three of the largest and most secure companies in the whole world. Only two carry the prime AAA credit rating from Standard and Poor’s (S&P). Wal-Mart does not have that credit score, even if its annual revenue is more than $400 billion and only a negligible 19 percent of its capital comes from debt issues. But as top-rated companies such as General Electronic and Pfizer lost their ratings during the recession, Wal-Mart proved itself recession-proof as it gained greater market shares during the period. Finance analysts say the giant retailer shows a strong promise of stability and advise buyers to consider investing on Wal-Mart bonds.

Wal-Mart Credit Score Shows Promise to Bond BuyersWal-Mart’s total debts are currently at $40 billion, 41 percent of which will not be due until 2023 or longer. There is a very small need for near-term refinancing, which makes financing cost the only matter of concern. Its bond yields also surpassed the federal government’s issues, even if its expenses are quite low.

Analysts say there is no doubt that Wal-Mart can fulfill its financial commitments, with $10 billion of its $400 billion annual revenue running in free cash flow.  As its sales continue to rise for more than a decade now, and as it continues to expand globally, analysts are confident that it can weather any type of economy. The company that started in Arkansas as Walton’s Five and Dime has become a global retail giant, they add.
Economists say while the five companies that carry a Triple “A” credit rating from Standard and Poor’s are impressive, none of them are as safe as Wal-Mart. Aside from the two mentioned above, the rest are Berkshire Hathaway, Johnson & Johnson, and Automatic Data Processing.

The United States, considered the ultimate creditor, can lend at very low rates because it is revered as “risk-free” by businesses and governments.

However, the federal government has racked up $12 trillion in debts while it only has $2.5 trillion on receipts. Considering its ratio of assets to liabilities, some analysts conclude it is safer to lend money to Wal-Mart than to the United States government. As the world’s largest retailer, selling anything from necessities to high tech electronics, analysts could barely see an end to Wal-Mart’s dominance in the retail market, adding that Wal-Mart could easily pay off whatever it owes.

Wal-Mart’s competitive strategies have continually put a strong pressure on its rivals and their suppliers, making it one of the most successful and sustainable companies ever. Pushing prices lower than the rest of its competitors, Wal-Mart is paving a safer place for investors and is on its way to a top-notch credit score.

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