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

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 firedoglake.com

Comments

[traveller77]

... just to cause trouble:

WalMart currently pays six percent of its net expenses on payroll and overhead (Labor). Their average new hire stays only nine or ten months. This means they have to hire nearly a whole new workforce every year. New employee hiring and training costs add another three or four percent to their six percent labor cost.

Given that they pay six percent to their employees; if they gave their employees a 20% raise, it would increase the retail prices they have to charge by about a half a percent -- before adjusting overhead costs. They can afford it.

If they paid their workers more, they'd retain more workers. Their replacement costs very likely would drop to cover any pay raise that a Union would negotiate. Raising employee pay (allowing Unions) would be a wash for WalMart.

We know some of this, because the Teamsters have already organized WalMart's truck drivers. That's right: The person driving the WalMart truck you just passed on the Highway is in a union. WalMart has to hold transportation costs down, and it's obvious that unionized trucking is working out very well for them.

These are the kinds of business costs that Wall Street Analysts NEVER consider. It is one good reason why the market is so volatile today.

trav77

[Pucky]

Don't you think that Walmart has done its own analysis on whether it is cost effective to retain more of its people?

These folks aren't dumb.

You think that Wall Street analysts never consider this. But Walmart surely has.

[grateful4thedead]

putting aside EFCA for a moment, my spouse was a member of the international flight attendants union.

what a complete waste of every cent of union dues that she paid. unions had their time in america and now it is time to move on. if you are smart and work hard, you don't need a union.

hell, most of the union big shots are in bed with the pigs in the wall street crowd.

remember, if you are SMART and WORK HARD, no union is necessary.

now, if you aren't so sharp, that's another story.

[livesimply]

I didn't like all the union dues I was paying at the time over 20 years, but I'm sure glad to have had the health benefits I had and the small retirement I get now. I'm not sure I would have had either if not for the union. Unions still have their time. I'll let someone else give you the rant about how much unions helped them or their parents earn a living wage.

[rjmiller]

Union workers typically make more money and get better benefits than non-union workers doing the same job.

[IntelligenceQuantifier]

Your opinions may be legitimate in regards to your wife's union. But let's not blanket all unions negatively. I myself was a union man (IBEW) in the past. My healthcare was so great, doctors were baffled when I pulled out two different insurance cards and told them to pick one, any one. No primary care physician was required, I could go directly to a specialist without a referral. At the time my co-pay was $2.

When I was in management at a different company, the technicians I supervised had a horrible union. Because I came from a good union, I could see just how poorly their union performed. On many occasions I fought with my own bosses in their behalf. Their union was nonexistent, but they collected their dues religiously. If my cheap ex-boss had it his way, technician raises would have been few and far between. So please, don't preach that rhetoric that ALL unions aren't necessary. Lets just agree that ALL of them aren't beneficial to the workers.

[jsgaetano]

$100 says when the EFCA passes, and even if they unionize..­. Wal-Mart will still continue turning a profit.

[BBackSoon]

Just think if each of the workers at Wal-Mart make a few more dollars a week they might even buy more products from Wal-Mart.

[MsLiz]

Except for meat. They know the meat isn't fit to eat.

[Zyzzygowski]

It is called fomenting.

It sounds as if someone is going short on Walmart stock.

Yes, mentioning Safeway as a union shop and not speaking to how the EFCA will enhance their position is hardly balanced analysis. Equally unbalanced analysis is that there are other non-union shops, similar to Walmart, that were not mentioned, or downgraded.

Someone is fomenting and going short, possibly in an attempt to make some quick cash.

[tomasedison]

maybe...ju­st maybe the Walton family needs to be a little more Christian

and a whole lot less greedy than they've been the past 40 years

[rekk]

I think Jane is a great columnist. Cutting through hearsay and ulterior motives. I love reading her columns.

[ALC]

If the employee rights bill is delayed until this summer it could actually work against Wal Mart. One factor these "experts" haven't considered is that the Senate race in Minnesota is due to be settled by then and democrat Al Franken is most likely going to be the winner. This would give the democrats a fillibuster-proof 60 votes and the house is already expected to pass this bill. A delay until summer is just what the democrats are playing for and these "gurus" don't see it. Of course if the GOP keeps pissing off senator Bunning in Kentucky this could all happen sooner. He has already threatened to defect.

[ThePeacemakers]

WTF? Pay 'em more and they'll buy more...fro­m right there in Wal-Mart.

[TharsHammar]

I don't get what Jane is getting at here. Is she alleging that Walmart is spending millions of dollars to fight a bill that would increase their future earnings potential?

Jane is working under the valid assumption that Walmart and others want to defeat EFCA because they are greedy for future earnings. Walmart et al must think that EFCA will hurt their future earnings potential. Clearly if walmart thinks that (and they are spending millions of $$ to fight the legislation b/c of that thinking) then others can make the case to downgrade the stock because EFCA will hurt Walmarts future earnings potential.

What is Jane getting at? That Walmart is cooking the analysis, and that secretly Walmart knows EFCA won't hurt their future earnings but they just hate unions that much they are lying to us about EFCAs impacts on corporate earnings? I thought the whole point of unions was to more fairly share the $$ the corporation makes with its employees, thus reducing the corporations earnings but increasing the workers earnings.

That said, Walmarts future earnings potential is no real concern to me, and EFCA should be judged on its merits - not what it does to the earnings of corporations!

[SamEllison]

The question is, why would only one of more than twenty analysts of Walmart stock think at this time the passage of a law sometime in the future should be an excuse to lower the ranking of that stock now?
Jane wondered if it was a political agenda, giving ammo to those who oppose the bill.
I and others that were mentioned thought she could be manipulating the stock price.
Something similar to what Cramer was caught explaining in an old interview that was in the news the other day.

[nomoredead]

Healthcare cost are doing more damage to companies than a union.

[amdezurik]

wal-mart does not pay any, they depend on taxpayer funded Medicare and such

[nomoredead]

Wal-Mart is union in China. Think their making a profit over there ?

[amdezurik]

yep

[drumz]

The middles class was built by the unions. They brought decent wages and benefits. There is a direct correlation between the narrowing of the middle class and the rise in wealth to the upper class. They got greedy and found ways to demonize labor unions (thanks Raygun) and bring in low wages and ship jobs over seas.
We need the unions back! We need our manufacturing back and our IT centers. We need trade tariffs back and you will see places like Wal-F art bit the dust. No more goods from China!

[scott63]

I know alittle bit about unions I was a teamster for 15yrs, If you are a young and hard working person raising a family and taking pride in your work unions can be great, but there is a dark side to them as well and they come in the form of what we called old timers, the people who had been in the unions for 20 or more years, who now felt entitled to all the benefits without any of the labor, they were a real thorn in the side of management and as long as they did the bare minimum could not be touched, they were payed the most and did the least claiming all their years of service as fair excuse, they were a drag on the rest of us and caused the most trouble at contract time, you see when they were young and raising families they wanted all the money in there pockets and none in the pension, but now as retirement loomed they wanted more money in the pension and less in our pockets. I geuss the point is that there is a down side to everything and people need to be aware of that, oh and by the way my company closed it's doors in 2001 and moved to Canada where they could operate cheaper without a union.

[drumz]

For every bad union there are a thousand bad employers.

[citizensrus]

They have unions in Canada. And they have the EFCA in Canada.

[garymc8]

Each Walton is worth 7 Billion dollars. EACH. They could each pony up 10 million each and cover all their employees. It won't hurt them that much.

[TharsHammar]

Walmart has 2,100,000 employees. It would cost a little more than $10 mill from each Walton to cover all their employees!!

[amdezurik]

yaeh let the taxpayers keep on "covering" them instead...

[hoopesaz]

So she has a different opinion than others. Hardly a feature story. Truth is, if it were to pass it would negatively impact the shareholders of the company. Even if you agree with the legislation, the impact on the shareholders is not really disputable.

So, the story is that she thinks it might pass, others think it will not. And for that, we are going to get worked up into a lather. Shocking.

[BruceHNV]

Her "opinion" exists only to support her employer's position.

[Paul]

So financial analyists are something like 20 to 1 certain it will not pass?

The chances must be better than that - yet the so-called analyists don't reflect this reality.

No wonder the system is broken.

[garymc8]

And Obama was going to lose!

[BruceHNV]

No. Financial analysts are 20 to 1 certain that if it passes, it won't hurt Wal Mart.