Wal-Mart Stores, Inc. (NYSE: WMT) reported spectacular results this quarter despite disappointing results from its peer group. The world’s largest retailer posted same-store sales number up 2.6% as shoppers tighten their wallets and target the cheaper options. The trend may seem predictable to the average person, but many analysts were caught off-guard with their estimates. Wal-Mart also decided to hike its dividend from $0.88 to $0.95 per year. The move is likely designed to jump-start its multiple that has been trading below peers despite strong growth. So, is this mega-retailer a buy now?

Wal-Mart’s target demographic continues to grow larger as an increasing number of consumers make the switch from quality to value. This should translate into very real growth for the world’s largest retailer as many analysts are now expecting the stock to reach $70 per share if economic and stock market conditions improve within the next 12 to 18 months. Many were previously concerned that weakness in U.S. consumer spending may hurt growth, but it now appears that the company’s “value” image is actually leading to more shoppers purchasing its products.

Unfortunately, the tough environment for retailers may prevent Wal-Mart’s multiples from expanding too much despite strong growth. Decreased consumer spending hurt many players in the industry, including apparel stores like Gap Inc. (NYSE: GPS), Limited Brands, Inc. (NYSE: LTD) and J.C. Penney Co. (NYSE: JCP). Slowdowns in the industry may lead to a lower industry mutliple that so many investors rely on for valuing companies. However, a look at the true measure of valuation, PE to growth (PEG), suggests that Wal-Mart remains undervalued compared to its peers. But in the end, it will take an industry recovery for its multiple to expand and share price to jump.

In the end, this is all good news for Wal-Mart shareholders. Same-store sales have increased during an economic downturn while its profits were also up dramatically. However, it may take some time before the fruits of these improvements are picked on Wall Street thanks to a slowdown in the rest of the economy. If there is a broad recovery in the next year or two, look for Wal-Mart to hit and surpass $70 per share. Combined, these factors make WMT a stock worth watching!

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Motorola, Inc. (NYSE: MOT) warned shareholders today that it has not endorsed activist investor Carl Icahn’s nominees for its board as the troubled company’s annual meeting approaches. However, a growing number of dissident shareholders alongside a plummeting stock price has his odds of a successfully proxy campaign running pretty high. Motorola shares nearly halved since shareholders last rejected Icahn’s bid for board seats to under $10 per share. So, are shareholders ready for change and is Carl Icahn the right man to bring it?

Carl Icahn recently revealed a 6.3% stake in Motorola via a Schedule 13D/A filing, which may indicate that he believes in his odds this time around. The activist investor plans to continue pushing the company towards spinning off its handset division into a standalone company to be led by an outsider. Motorola’s attempt to shop the division have failed and now this appears to be the only option, but many analysts are concerned that a sale now would not obtain full value for its core division. Icahn’s planned spin-off may circumvent this problem by allowing the company to get rid of the division while still retaining a stake that could be held until a successful turnaround takes place.

The problem is that this turnaround could take some time. Motorola’s handset division continues to struggle with declining market share and lower earnings as it loses its dominant edge gained by record sales of the Razor. Now, many service providers are expanding their offerings to include other handset makers like Nokia which could further erode their market leadership. Meanwhile, this slow in growth combined with tight credit has led to no strategic or financial suitors for the division. As a result, investors who were looking for this quick fix are now realizing they may face a long road ahead and began selling off shares.

Carl Icahn now faces increased odds of successfully obtaining valuable board seats that he promises to use to aggressively pursue his agenda. A spin-off of the handset division would likely unlock at least some value in the company’s shares while the excess cash could be used to fund further share repurchases to boost earnings. Meanwhile, any meaningful turnaround in its growth could also expand its multiple and turn this stock into a big with for the activist investor. Whether or not he can pull it off remains to be seen, but this is a situation that is definitely worth watching closely over the next few months!

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Blockbuster Inc. (NYSE: BBI) shares fell sharply today despite announcing strong results proving that it can still compete against online video rental and streaming online video services. The movie rental chain announced in its latest 10-K annual report that its fourth quarter profits grew by 360 percent on the heels of aggressive cost-cutting and the repositioning of some of its subscription offerings. The stock price quickly jumped 3.4 percent in morning trading before investors began to realize that actual revenue increases amounted to just four percent growth year over year. So, can Blockbuster compete or will it eventually face reality?

The market for video rentals is a quickly changing one that many are struggling to grapple. DVD rentals themselves continue to grow as Americans spent some $7.5 billion in 2006, but growth flattened in 2007 thanks to the rise of online downloads and video-on-demand services offered by cable providers. Meanwhile, Netflix (NDAQ: NFLX) has proven to a more near-term threat that has also taken a large part of the company’s market share over the year. Combined, these revelations caused Blockbuster shares to halve last year to around $3 per share where it has remained until now.

Blockbuster does have a secret weapon, however, in the form of its subsidiary Movielink. The online movie download service was formed in 2002 by a group of major movie studios including MGM Studios, Paramount Pictures, Sony Pictures, Universal Studios, and Warner Bros who spent a reported $100 million building the service that has yet to hit the mainstream. Blockbuster purchased the chain for $6.6 million in cash and it positioned the company to leverage its existing infrastructure to promote a new service that is well connected in the sue-happy movie industry. The service provides the company with the infrastructure for digital downloads and provides it with the digital rights to more than 6,000 films.

Blockbuster has also taken action to improve its current operations. Recently, the company introduced its five-point distribution system that allows customers to rent movies in stores, by mail, via online downloads, in DVD kiosks, and through flash memory cards. Meanwhile, the company also managed to substantially cut its costs, which has directly helped increase its profits and bottom line. Combined, this has many analysts predicting that the company will likely perform well in FY2007 and guide fairly bullishly for 2008. As a result, this is definitely a stock that is worth watching at these cheap levels!

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