Walmart and Walmex shares plunge on bribery scandal. Time to buy or sell?
Walmart shares shares plunged to $59.54 on Monday but some analysts think they will eventually float back up.
By MANUEL RUEDA
Walmart’s shares plunged by almost 5 percent on Monday, following allegations that the company’s executives in Mexico systematically bribed local officials in order to obtain construction permits for the company’s stores.
The allegations, presented by the New York Times, could lead to legal probes, the firing of top executives and multi-billion dollar fines if they are proven to be true in US courts.
But some financial analysts said on Monday that these allegations will do no serious harm to the company.
Instead, they recommended that investors buy into Walmart’s depleted shares, and wait for them to go up, as the company weathers the storm created by the Mexico bribing scandal.
“We believe the impact on the company’s business will be minimal,” wrote John Zolidis from Buckingham research. “Although the story gives us pause..we would use weakeness (in price) to buy the stock,” Zolidis mentioned in a research note.
Alberto Bernal, the Head of Research at financial services firm Bulltick, told Univision News that with its robust growth around the world and sales of more than $420 billion, Walmart is still a safe bet.
“I don’t think people with this stock will do so bad,” he said. “It is a company with huge sales.”
Bernal expects the bribery scandal to hammer Walmart’s shares for the next few weeks. He said it would be wise for investors to “wait a little while,” and buy into Walmart stock when it falls $5 below its current price of $59.54.
“This is going to last for a while,” Bernal said mentioning the prospects of congressional hearings on the issue and negative press coverage of the company.
The stock price of Walmart’s subsidiary in Mexico, Walmex, dropped even more spectacularly than that of its parent company, falling 12 percent on Monday.
“With an investigation of this type, there are a lot of people, a lot of funds with strict rules that are going to dump their positions,” Gerardo Roman, a trader at Mexican brokerage firm Actinver told Reuters.
Analysts at Actinver told the newswire that they were going to remove Walmex from their list of favorite stocks.
The information collected by the Times dates from emails and information collected by a Walmart lawyer in 2005, which says that executives in Mexico paid out $24 million bribes for construction permits to Mexican officials of different ranks.
Even if the cases are old, Walmart can still be fined for bribery in the United States under the Foreign Corrupt Practices Act, or FCPA, a law that prohibits US companies from bribing foreign governments.
Fines against Walmart could exceed $4 billlion according to Forbes Magazine, which reported on Monday that companies tried under the FCPA in the past have had to pay fines worth one to two percent of annual sales.
There’s also a real danger that if bribes did indeed occur, Walmart would have to fire some of its top executives, in order to get some leniency from the Department of Justce.
“Among the remedial actions (in FCPA cases) is ‘house cleaning’ of anyone involved in illegal conduct,” Richard Cassin, a lawyer who is an expert on the FCPA told Reuters.
However Bernard Sosnick from Gilford Securities told CNN Money, that the bribery scandal is not likely to have a lasting impact on Walmart.
“It’s shocking, no doubt about it,” Sosnick said, “but I think it’s just a temporary impediment to the stock.”
Buying stock in Walmart now, or in the near future, could pay off in the long run if Sosnick is correct.
But is it the ethical thing to do?
(Photo: flickr rellim)