Oppenheimer Downgrades Walmart, But Keeps Retailer 'On The Radar'

Walmart Inc WMT's stock suffered its worst trading day since the late 1980s Feb. 20 in reaction to its fourth-quarter results, prompting Oppenheimer to drop its bullish stance. 

The Analyst

Oppenheimer's Rupesh Parikh downgraded Walmart's stock rating from Outperform to Perform with a price target lowered from $110 to $93. 

The Thesis

Walmart's status as the world's biggest retailer with an "increasingly powerful, yet still up-and-coming omnichannel juggernaut" remains unchanged, Parikh said in the downgrade note. But the stock has a reputation of struggling to maintain an above-market P/E multiple, and a downgrade may be justified as some of the company's initiatives are less positive today, he said. 

For example, Walmart's e-commerce growth slowed from 50 percent in the third quarter to 23 percent in the fourth quarter, the analyst said. While management guided toward a re-acceleration to 40-percent growth in fiscal 2018, this objective "appears less likely" outside of new M&A deals, Parikh said.

Walmart's ability to drive stabilization and improvement in operating margins appears to be "more of a risk" due to higher costs associated with free shipping offers along with wage and freight pressures, according to Oppenheimer. 

Finally, Walmart's stock is trading at a "more balanced" valuation, but multiple favorable initiatives and "key fundamental positives in the story" implies it's best for investors to keep Walmart's stock "on the radar," Parikh said. 

Price Action

Shares of Walmart were trading lower by 1.3 percent early Friday morning.

Related Links:

Why Credit Suisse Favors Target Over Walmart

Morgan Stanley: Walmart's Slowing E-Commerce Growth Is Cause For Concern

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