NEW YORK (TheStreet) -- Shares of Wal-Mart are up about 10% so far this year.
That's not a shabby increase, and it makes me think that Wal-Mart investors aren't buying in to concerns that the recent increase in the Social Security payroll tax will dent the retailer's sales.
The company's solid fourth-quarter earnings report also shows that Wal-Mart should do just fine.
Granted, improved consumer spending is always important for Wal-Mart. But the immense size of this company serves as protection, and shares are not going to sway that drastically from one quarter to the next. For that matter, the stock looks fairly priced at the moment. But that's not to say more gains are not on the way.
Solid Fourth-Quarter Results
As is often the case, there were very few surprises in Wal-Mart's earnings results. The company doesn't deviate much from what was expected. Fourth-quarter revenue increased 3.9% to $127.1 billion.
This was slightly less than consensus estimates and marked much slower growth than Target's 7% increase in revenue.
Earnings arrived better than expected at $1.67 per share, up 11% year over year -- helped by a much favorable tax rate. Likewise, comps grew 1%. This is the metric that tracks the sales performance of stores opened at least one year. It's not a robust number, but it bested Target's 0.4% comps, which were down from a year earlier.
Wal-Mart's foot traffic declined 0.1%, but that was still better than Target's 1% decline. And Wal-Mart was able to offset this with a 1.1% increase in average transactions.
Perhaps most interesting, the company said that the 1% comp growth in the U.S. helped the company gain market share in several categories, including food, health & wellness/OTC, entertainment and toys.
We can speculate from whom Wal-Mart stole share in the quarter. Toys R Us comes to mind, as does Best Buy , which has had its own struggles of late.
Although Best Buy recently beat earnings and revenue estimates, there was very little to suggest that Best Buy is winning in the entertainment category after squeaking out just 0.2% revenue growth in its fourth quarter.
What's more, Best Buy opted not to issue fiscal 2014 guidance, but the company warned that the first quarter will be under significant pressure, which may be related to a combination of the rollback of the payroll tax decrease and the delay in tax refunds.
Conversely, Target just posted 30% comp increase in January sales. The quarter is not over yet, but Target seems pleased about foot traffic. And it doesn't appear as if Target's customers are worried about refund checks.
For that matter, Wal-Mart guided first-quarter earnings to arrive at $1.11 to $1.16 per share on flat comps. This was slightly less than the Street's estimates. The company has made it known that it hated that the temporary reduction in payroll taxes was ending, which management has stated may adversely impact first-quarter and fiscal 2014 projections. Well, it's Wal-Mart. And I'm not really all that concerned about its concerns -- if that makes sense.
What I mean is that we've been here before. The company was still dominant at the height of the financial crisis, and it will be fine today. And the economy has been much improved since then. The fact is -- people aren't going to suddenly stop shopping for food and household goods. That flat-screen TV from Best Buy, however, might require more thought.
For now, from an investment perspective, the stock is still trading at an attractive valuation. When compared to Costco and Target, which are both trading at higher P/E ratios, a case can be made that Wal-Mart is undervalued by at least 10%. With continued operational improvements and a recovering economy, patient investors should expect shares to approach the lower $80s by the second half of the year.
At the time of publication, the author held no position in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.