Wal-mart (WMT): Milk, The Profitable, Competitive Weapon - Jefferies
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Jefferies analyst, Daniel Binder, reiterated his Buy on Wal-Mart (NYSE: WMT) after hosting a call with Wayne Olsen, an industry expert in milk manufacturing and supply chain, to discuss Walmart’s decision to open a large milk manufacturing plant.
Going vertical in milk should lead to lower prices. Mr. Olsen laid out a mathematical case for WMT to open its own plant, which included conversion costs in the high teen to low twenty cents range. This would put the cost of final product at $1.65-$1.68 before distribution costs. Including another $0.20 in distribution to WMT DCs and then to stores, plus a modest mark-up, it seems plausible that WMT could consistently have low priced milk in the stores this plant serves (possibly around $2 per gallon).
No change to the price target of $86.
Shares of Wal-Mart closed at $72.01 yesterday.
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