Walmart (NYSE:WMT) is gearing up to present a nearly flawless quarter to investors when it releases its results on August 17, ahead of the market’s opening. Should this not transpire, the stock could bear the brunt of heightened expectations. The world’s largest retailer and a key component of the Dow Jones Industrial Average (^DJI) is currently enjoying a 52-week peak following a 13% year-to-date surge.
In contrast, the Dow has recorded only a 9% increase over the year, while competitor Target (NYSE:TGT) has witnessed a 13% decline due to a series of disappointing sales and earnings figures. Trading at a forward price-to-earnings ratio of 24.5 times, Walmart’s stock is slightly above its historical average of 21.9 times.
The Positive Outlook for Walmart Stock
The robust performance of Walmart’s stock can be largely attributed to its reputation as a market share frontrunner, extending into 2024. A recent survey conducted by investment bank Stifel revealed that Walmart has the “highest shopping intentions” among its peers. Additionally, Stifel’s analysis indicated that Walmart retains a substantial share of higher-income shoppers earning over $100,000 annually. During 2023, 71% of households earning more than $100,000 have chosen Walmart for their shopping needs, compared to 50% at Target and 31% at Costco (NASDAQ:COST).
According to Mark Astrachan, consumer survey remains most favorable for shares of Walmart and Costco, seeing each as best-positioned to maintain share gains in an increasingly competitive US spending environment. Astrachan added, “We maintain a positive outlook on Walmart shares, anticipating more upside potential than downside from the current levels.” Astrachan’s projected price target for Walmart is $167, reflecting a potential 4% increase from the present stock value. Other analysts in the financial world are even more optimistic about Walmart’s prospects, citing factors beyond its ability to attract more spending from financially constrained households. We should also mention substantial opportunities that lie ahead for Walmart. These include its rapidly growing media division, with aspirations to become one of the top 10 advertisers in the US, as well as its ongoing expansion into the healthcare sector, bolstered by the recent termination of its partnership with National Vision, remarked Guggenheim analyst Robert Drbul in a note published on Monday. Drbul stressed the importance potential for value creation from “alternative revenue streams” such as advertising, fulfillment services, financial services, and healthcare.
Drbul, a seasoned retail analyst, also contends that the market is undervaluing Walmart’s stakes in Walmex (Walmart Mexico), Flipkart, PhonePe, JD.com, and Dada Nexus. Drbul’s estimates suggest that these enterprises alone hold a combined worth of $155 billion at present. Walmart has invested $93 billion in these businesses, with its largest holdings in Flipkart (84%) and PhonePe (84%). Drbul’s analysis concludes that Walmart’s stock should be valued at $180, approximately 12% higher than its current level. “We believe Walmart’s strong position empowers it to accelerate investments in its infrastructure, enabling the full optimization of its strategy. This, in turn, will expedite Walmart’s growth in both revenue and profit in the medium to long term,” Drbul remarked. “Walmart is diversifying its profit base, driven by a burgeoning marketplace, fulfillment services, advertising, financial services, data monetization, and its healthcare initiatives.”
Nevertheless, despite the optimistic outlook for Walmart, it’s important not to overlook the immediate need for the retailer to deliver exceptional results. Anything short of this could result in a markdown of Walmart’s stock, akin to an out-of-season swimsuit.
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