May 10, 2018 / 10:41 AM / 2 months ago

BUZZ-Street View: Flipkart deal more dilutive than expected for Walmart

** Walmart Inc to pay $16 bln for a roughly 77 pct stake in Indian e-commerce firm Flipkart, marking its largest-ever deal as it competes with Amazon.com Inc

** Wall St. brokerages feel deal makes more sense long-term, though short-term dilution could lay on WMT shares; At least 5 brokers trim Walmart PT

DEAL MAKES LONG-TERM STRATEGIC SENSE

** Morgan Stanley says deal is more dilutive than anticipated, but sees long-term growth opportunity

** Without seeing success in the U.S. ecommerce business, investors will be skeptical WMT can succeed in India - MS

** However, deal effectively prevents AMZN from gaining an insurmountable advantage in the Indian market, one of the fastest growing economies in the world - MS

** Oppenheimer says WMT’s Flipkart investment, along with investor worries on U.S. profitability in increasingly competitive e-commerce backdrop, will weigh on WMT’s multiple

** WMT’s has liquidity opportunity through Flipkart IPO, however, capital deployment, operating loss burdens could be material - RBC

** Susquehanna says deal makes strategic sense in the long term, but short term dilution from deal is ‘brutal’

** Jefferies says deal reflected greater dilution than expected, but market may flip its verdict considering value created through Flipkart’s IPO

** At current growth rate of 50 pct, 2-3x EV/sales two years from now, WMT could double the value of its investment in Flipkart, says Jefferies (Reporting by Brijesh Patel in Bengaluru)

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