Paras Griffin/Getty Images for 2017 ESSENCE Festival
President and CEO of Wal-Mart Stores, Inc Doug McMillon speaks onstage at the 2017 ESSENCE Festival presented by Coca-Cola at Ernest N. Morial Convention Center on June 30, 2017 in New Orleans, Louisiana.
- Walmart is planning to buy back $20 billion of its own shares over the next two years.
- But its $16 billion Flipkart acquisition could put a dent in those plans, according to RBC Capital Markets analyst Scot Ciccarelli.
- Watch Walmart trade in real time here.
There's a different risk to Walmart's Flipkart acquisition than what everybody's talking about.
While most of the concern on Wall Street surrounding Walmart's Flipkart acquisition has centered on whether or not the Indian e-commerce giant can be profitable anytime soon, RBC Capital Markets analyst Scot Ciccarelli is worried about something else: the cash Walmart has available for its share buyback program.
"The company outlined plans to repurchase roughly $10 billion worth of shares in both 2018 and 2019," Ciccarelli wrote in a note out to clients Friday morning. "We question, however, whether the acquisition of Flipkart will have an impact on these plans." Earlier this month, Walmart announced plans to buy 77% of Flipkart for $16 billion.
Walmart announced in October that it plans to buy back $20 billion of its stock within the next two years. Half of that is supposed to take place in 2018, according to Ciccarelli.
And there seems to have been a disconnect between how Walmart intends to execute this plan, and how the plan is actually unfolding. Walmart recently held a conference call regarding the Flipkart purchase, and indicated that it will hardly - if at all - deviate from the original buyback plan.
"On the May 9th call to discuss the acquisition, management indicated that it will 'continue our share buyback roughly as we talked about with you in October,'" Ciccarelli noted. "However, repurchases in quarter-one slowed to just $539 million from average of $2.1 billion per quarter in 2017 and 2016."
Walmart will only be able to accomplish $6 billion of buybacks for 2018, Ciccarelli estimates.
For context, Walmart's buyback plan is fairly large. In a year of heavy buyback activity, Apple announced one of the largest buyback plans of all. The tech behemoth is planning to repurchase $25 billion of its own stock over the next 5 years.
Walmart is down 14.6% this year.
Markets Insider