Why 4 Analysts Like Walmart's Stock After Pullback

Why 4 Analysts Like Walmart's Stock After Pullback

Retail giant Walmart Inc WMT reported Thursday with fourth-quarter results that sent the stock down 6% on the day amid minimal EPS growth and elevated near-term investments.

Multiple Walmart analysts continue to see a bullish picture and are recommending investors buy the dip. 

The Walmart Analysts: Raymond James analyst Bobby Griffin maintains an Outperform rating on Walmart's stock with a price target lowered from $165 to $155.

Morgan Stanley analyst Simeon Gutman maintains an Overweight rating with a price target lowered from $156 to $154.

KeyBanc Capital Markets analyst Edward Yruma maintains an Overweight rating with an unchanged $180 price target.

Goldman Sachs analyst Kate McShane maintains a Buy rating with an unchanged $164 price target.

Raymond James Recaps Walmart's Q4: Walmart reported fourth-quarter revenue of $152.1 billion versus the Street's estimate of $148.6 billion, while EPS of $1.39 was shy of the $1.51 per share expected due to COVID-19 and SG&A pressures, Griffin said in a note.

Walmart's U.S. comps of 8.6% were "well above" the research firm's 5% estimate and can be attributed to a strong holiday season and continued momentum in January, the analyst said. 

The average ticket size was up 22% year-over-year, but transactions were down 11%, as consumers appear to be consolidating shopping trips, he said.

Online sales in the U.S. were up 69% year-over-year, and recent momentum and gains look "permanent," Griffin said.

This should translate to improved e-eommerce operating income and contribute to consistent EBIT growth for the business as a whole, the analyst said. 

"Our positive thesis remains relatively unchanged, as we continue to see Walmart as a long-term winner in today's retail environment."

Morgan Stanley On Walmart's 'Prudent Initiatives': Walmart's 2022 financial performance will be "hampered" by heavy investments, but these are "prudent initiatives" to build on its competitive moat and improve the customer experience versus faster-growing rivals, especially Amazon.com, Inc. AMZN, Gutman said in a note. 

Walmart's U.S. 2020 EBIT of around $19.5 billion is nearly $2 billion lower than what it was in 2014, and management's latest investment cycle announcement means the "hits keep coming," the analyst said.

Yet growth is expected to resume beyond the current cycle, and management's focus on automation, improving its supply chain, and investing in its people will support its terminal value, he said. 

"WMT's longer-term risk/reward is still favorable despite the near-term P&L setback, keeping us Overweight." 

KeyBanc Highlights Walmart's International Business: Walmart's moves to divest its U.K., Japan, and Argentina businesses is part of a strategy to cut exposure to lower growth markets and focus elsewhere, Yruma said in a note.

Walmart will pay more attention in growing its business in Canada, Mexico, India and China, the analyst said. 

Of particular note, Walmart's e-commerce sales in Mexico were up 171% year-over-year in 2020 and up 89% in China, he said.

Also, the company's focus on local markets and investments in Flipkart and other hubs of innovation will "provide learnings" for Walmart to enact throughout the business, according to KeyBanc. 

Goldman Sachs Encouraged By Walmart's Guidance: Investors appear to be disappointed with Walmart's outlook, but management's long-term revenue guidance of 4% growth and faster operating income growth was encouraging, McShane said in a note.

These growth prospects could occur as soon as fiscal 2022, the analyst said.

Walmart's increased investment is also a result of higher sales dollars in 2020 and an increase in its cash position from $9.5 billion at the end of 2019 to $17.7 billion, she said.

The company likely still has a higher than normal cash balance so it has additional flexibility moving forward, according to Goldman Sachs.

WMT Price Action: Shares of Walmart were trading higher by 0.3% at $138.07 at last check Friday. 

Photo courtesy of Walmart. 

Posted In: Bobby GriffinEdward YrumaGoldman SachsKate McShaneKeyBanc Capital MarketsMorgan StanleyRaymond Jamesretailretail earningsSimeon GutmanAnalyst ColorEarningsNewsGuidancePrice TargetReiterationTop StoriesAnalyst Ratings