WAL-MART STORES INC. $56 (New York symbol WMT; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 3.8 billion; Market cap: $212.8 billion; Price-to-sales ratio: 0.5; Dividend yield: 2.2%; WSSF Rating: Above Average) is the world’s largest retailer. The company has over 8,400 stores in the U.S. and 14 other countries, including over 2,700 supercentres, which sell groceries as well as general merchandise. Groceries now account for about half of Wal-Mart’s U.S. sales.

The company’s sales rose 30.7%, from $312.4 billion in 2006 to $408.2 billion in 2010 (Wal-Mart’s fiscal year ends January 31). Earnings rose 29.0%, from $11.0 billion in 2006 to $14.2 billion in 2010. Earnings per share rose 39.2%, from $2.63 in 2006 to $3.66 in 2010, on fewer shares outstanding.

Wal-Mart’s large size lets it negotiate better prices with its suppliers. That gives it a big advantage over its competitors. The company has also invested heavily in computer systems that track its customers’ buying patterns. This information helps Wal-Mart quickly adjust its inventories to respond to changing trends.

The company’s U.S. stores account for about 65% of its overall sales. In fiscal 2010, Wal-Mart’s U.S. sales rose 1.1%.

The company’s international stores account for 25% of its sales. The international division’s sales rose 1.3% in fiscal 2010. That’s partly because Wal-Mart bought a majority stake in Distribución y Servicio D&S S.A., Chile’s leading food retailer, in January 2009. If you exclude the negative impact of foreign-exchange rates, the international division’s sales would have risen 11.2%.

The remaining 10% of Wal-Mart’s sales comes from its 600 Sam’s Club warehouse stores in the U.S. It also operates over 100 of these stores in Brazil, China, Mexico and Puerto Rico. This division’s sales fell 0.4% in fiscal 2010.

International expansion adds appeal

Wal-Mart plans to expand the international division’s selling space by 9% this year. In the U.S., it will expand its selling space by just 2%. Instead, Wal-Mart will focus on remodelling 600 of its U.S. stores to make them more appealing. These improvements include wider aisles and clearer signs.

The company also hopes to attract customers by installing 500 new MoneyCenters inside its existing stores. It now has 1,000 of these outlets, which offer low-fee financial services, such as cheque cashing, bill payments and prepaid debit cards. Unlike a regular bank, MoneyCenters do not offer savings accounts or make loans.

Wal-Mart’s strong balance sheet gives it plenty of flexibility to expand and invest in new initiatives. Its long-term debt of $36.4 billion is a low 17% of its market cap. It also holds cash of $7.9 billion, or $2.08 a share.

The company should earn $4.00 a share this year. The stock trades at 14.0 times that estimate.

Wal-Mart is a buy.