Why Was Citi's Deborah Weinswig the Only Analyst to Downgrade Wal-Mart on Employee Free Choice?

04/13/2009 05:12 am ET | Updated May 25, 2011

Citigroup analyst Deborah Weinswig was euphoric on February 19 about the future of Wal-Mart, appearing on CNBC to say that the stock was "on fire" and the perfect play in this economy.  And indeed, she may be right.  Sales for all stores that had been open for a year doubled analysts' estimates and rose 5.1% in February.  The company responded by raising its annual dividend by 15%.  

So why did she downgrade Wal-Mart from a "buy" to a "hold" on Tuesday of this week?  Because, she says, the Employee Free Choice Act (EFCA) -- a bill that Majority Leader Harry Reid says will not come before the Senate until late summer  -- might pass. It "could be a significant drag on earnings," she concluded.

Yesterday Wal-Mart Treasurer Chales Holly said that the company believed the bill would be defeated.   

There are 21 analysts who cover Wal-Mart.  Of that twenty-one, not one has followed Weinswig's suit and downgraded the stockt. The only other one to publicly address the bill was Credit Suisse grocery analyst Ed Kelly, who concurred with Holly:

Because of all the derision surrounding the bill, Credit Suisse doesn't believe the bill will pass in its current form and instead a compromise will be debated over the next several months.

Four days later, Deborah Weinswig is out there all by herself.

Citi held a private conference call on Wednesday, hosted by a lobbyist for the US Chamber of Commerce, to "build opposition to the Employee Free Choice Act" according to the Huffington Post's Sam Stein.  During the call, Weinswig cited dubious research funded by an astro-turf front group for the Chamber to make the claim that the bill's passage would increase the following year's unemployment rate by 1%. (In 2006 the OCED did an exhaustive analysis and concluded that there was no correlation between unionization and unemployment rates.)

I spoke with Mark Miller, Wal-Mart analyst at William Blair & Co. who currently rates Wal-Mart as an "outperform."  He doesn't seem to believe that a response is necessary at this time, and that the impact of the bill's passage may already be factored into the price
of the stock.

"It seems early in the process -- it seems premature to make a stock call on this issue.  It could go both ways," he said. 

"If the measure would be delayed, it could be a positive for Wal-Mart stock, because it's something that has been discussed for a while.  There is some risk that is being discounted in the shares -- in other words, if there was no consideration of this, if there was no risk, I think the shares would be higher than they are."

Last night in an appearance on the Rachel Maddow show, Sam Stein noted that if the Employee Free Choice Act had a negative impact on Wal-Mart stock, it could also benefit a company like Safeway which is already unionized.  Although he does not cover Safeway, Miller said "I think it's fair to say that it could be a relative benefit."

Deborah Weinswig also covers Safeway for Citigroup.  She did not upgrade the stock based on the assumption that the Employee Free Choice Act would pass.

I spoke to a lawyer who follows the industry, and asked him if he thought Weinswig's Wal-Mart downgrade, and her subsequent participation in a conference call with an overt political agenda, was in any way suspect.

He pointed out that Citigroup had been in trouble before, when  CEO Sandy Weill asked analyst Jack Grubman to "take a fresh look" at AT&T's stock rating --  and subsequently helped Grubman's kids to get into an elite preschool.  Citigroup ultimately paid $2.65 billion in a settlement with investors who filed suit claiming that Grubman manipulated the analysis he used to justify a "buy" rating on WorldCom.

"If you're an analyst, you need to show that your analysis is independent, and that you're not beholden in anyone," he said.  "Is that a valid assessment?  She's one of 21 analysts of Wal-Mart -- and if she's the only one doing something, the marketplace is going to recognize it."

"Her reputation on the line," he said. 

Jane Hamsher blogs at