Updates on Walmart and Willis Lease Finance; Happy birthday, mom!
1) Every day, I scan hundreds of stocks along with the 52-week low list, looking for beaten-down stocks of quality companies – my favorite type of investment.
Retail giant Walmart (WMT) is one of the world's greatest companies, so the stock caught my eye when it dropped 9.2% yesterday – its worst day in more than four years.
The decline came after the company reported disappointing earnings (see the press release and presentation). Here's the Wall Street Journal with the story:
Walmart reported its smallest sales gain in more than six years as some Americans continue to spend cautiously – especially when shopping at the retailer's physical stores.
On Thursday, Walmart said U.S. comparable sales, those from store and digital channels operating for the past 12 months, rose 2.6%. That is the smallest quarterly increase the retailer has reported since 2020.
This chart from the article shows the weakening in-store-sales trend, which is only partially offset by e-commerce sales:
I wasn't surprised to see Walmart's miss. When I analyzed the company in my June 27, 2025 e-mail, I concluded:
Overall, Walmart's financials present a decent-but-not-fantastic picture, as the company has struggled to grow profits and [free cash flow]...
Consensus analyst earnings estimates for this year are $2.62 per share, so that would mean the stock is trading at about 36.9 times current-year earnings.
That's a very high earnings multiple that should only be reserved for high-quality and high-growth businesses.
So at current levels, I don't like Walmart's stock. Talk to me when it's trading at less than 20 times earnings...
In the same e-mail, I wrote that I continued to like Alphabet (GOOGL) in comparison:
It's much cheaper than Walmart – trading at only about 18.1 times this year's consensus earnings estimates – despite being an even better business with stronger growth prospects...
I'll say it again – I'm still pounding the table on Alphabet's stock.
It was a great call. Fourteen months later, Walmart is up a mere 7%, trailing far behind the S&P 500 Index (up 24%) and Alphabet (up 91%):
So, might Walmart be a buy today?
At yesterday's closing price of $103.84, it's trading at 36.2 times consensus analysts' estimates for this year and 31.7 times next year's. That's far above the 20 times multiple that would interest me.
On the other hand, Alphabet continues to look much more attractive.
2) Many readers have e-mailed me about aircraft-engine lessor Willis Lease Finance (WLFC), about which I've written many times (archive here).
In response to my update on the company a week ago, reader Frank D. asked:
Have you or your friend who is an expert on WLFC ever discussed the very poor governance: lots of shareholder dilution, a corporate yacht, activist investor, etc.? By all rights, with good management, WLFC should have become FTAI Aviation (FTAI)!
I think the multiple isn't crazy if the Street doubts WLFC's ability to a) be straight with their shareholders and treat them as partners, not as ATM machines (chairman gets 4% of the company as a bonus in 2025?), and b) because of the management quality question, the Street probably doubts their ability to successfully compete with FTAI over the long term or to successfully be able to pivot their business model as FTAI did (i.e., some melting ice cube risk).
I want to like WLFC. It's cheap and in a good industry, but maybe it's cheap for a reason. I think the converts are the best bet in their capital structure. $89 convert price and you get paid 3% or so to wait, seems low risk/high reward. If WLFC really begins to have success imitating FTAI, I think the stock blows past $89... but that's a big IF until proven otherwise.
I forwarded this to my friend who's an expert on WLFC. He acknowledged Frank's points but is overall optimistic for several reasons:
I 100% agree that part of the reason the stock is cheap is poor corporate governance. However, I see this slowly changing and some recent changes to the stock-based compensation structure and comments on the conference call would indicate that further improvement is coming. In addition, there has been an activist in the stock pushing on this topic, and I suspect there is a lot more dialogue going on behind the scenes.
If you look back a couple years the company didn't do an earnings call, they didn't like to talk to investors, they didn't pay a dividend, and they didn't have investor presentations. As they have pivoted to being more investor friendly and trying to get a better valuation, they have checked off a lot of these improvement boxes. Clearly the corporate governance is one of the biggest, but I am optimistic that there will be improvement.
On the comparison between WLFC and FTAI, he said there are some similarities but also many differences:
WLFC has a more modern fleet of engines, whereas FTAI has focused on the older CFM56 type engines. In this environment of elevated oil prices, WLFC's portfolio is much more valuable.
The biggest similarity is that WLFC has now pivoted towards having an asset management structure, which has been a big success for FTAI. One other difference is that FTAI's traditional leasing business has suffered as they have more fully pivoted towards asset management, whereas WLFC plans to maintain that business while separately growing the asset management business.
Lastly, I suspect that the convertible deal will lead to sell side coverage from Morgan Stanley, Deutsche Bank, and Bank of America. WLFC just put out a press release (and mentioned on the conference call) that they are attending the Deutsche Bank conference in early September. They have not participated in these in the past so it should be a great opportunity for some fresh eyes to look at the stock.
Another reader wondered whether insider selling – most recently, 600,000 shares – by WLFC founder and executive chairman Charles Willis might be pressuring the stock.
My friend weighed in on this concern as well:
I agree that it has pressured the stock and it is optically disappointing to see him selling at the current price. That said, if you study the history of his selling, it has always been price agnostic. And comments from the company would suggest it is entirely related to ongoing estate planning and diversification and has never correlated with business fundamentals. Ideally, going forward, their disclosures have suggested that they will not be issuing as much stock now that they have changed their compensation structures.
Further, this sale was disclosed in the 10-Q that was filed on August 4. So despite good earnings, we think that investors front-running this disclosure was a big part of why the stock traded down so sharply between August 4 and today, so the news of the sale is already heavily priced into the stock. Thus far, his sales have only been roughly 8% of the volume, so they are low impact and will be easily digested by the market.
He concludes that the insider selling could have many positive effects:
Lastly, as odd as it sounds to say, we would love to see Charles Willis sell 100% of his shares. We think it would be a huge positive as it would remove the control-person overhang, and all those shares would have to be indexed. Currently the stock is in the Russell 2000, which equates to around 10% demand on the float in price agnostic index buying. And the stock meets all the requirements to be potentially added to the S&P 600 Index, which would have a similarly positive impact on the shares. We know he isn't selling for fundamental reasons, so we love that each share he sells is now part of the float that must be indexed. And to us, the increasing passive money dynamic is a huge tailwind.
Thank you for the excellent questions and insightful replies!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
P.P.S. Happy 86th birthday, mom! One of the many reasons why I consider myself the luckiest guy on Earth is my parents, who have loved and cared for me every day in the almost 60 years since I was born. Here's a picture of me that day, as well as when I visited my parents a few months ago near their home outside Nairobi, Kenya:
I definitely won the "ovarian lottery" – a concept I learned from Warren Buffett, who said:
When I was a kid, I got all kinds of good things. I had the advantage of a home where people talked about interesting things, and I had intelligent parents and I went to decent schools. I don't think I could have been raised with a better pair of parents. That was enormously important. I didn't get money from my parents, and I really didn't want it. But I was born at the right time and place. I won the "Ovarian Lottery."