Wal-Mart Isn't Exciting 'But Better Than Many Staples Retail Alternatives'

Wal-Mart Stores, Inc. WMT witnessed a return of traffic growth against a deteriorating environment. Although there’s nothing very exciting, the company is “better than many staples retail alternatives,” Credit Suisse’s Edward J. Kelly said in a report.

He assigned an Outperform rating and $80 price target on Wal-Mart, versus the previous Neutral rating and $62 price target.

Wal-Mart witnessed traffic growth due to its in-store investments and improvement in low-end consumer. While stating that this progress was “encouraging,” given the worsening staples retail landscape, “there is more work to do,” Kelly commented. As management makes further investments, Wal-Mart’s top-line momentum would likely continue.

Related Link: Wal-Mart Investments In Low-Pricing Put Pressure On Everyone From Grocers To Dollar Stores

Structural Headwinds

“E-commerce, accelerating brick-and-mortar competition, an over-reliance on "Big Food" to drive traffic, a general lack of differentiation in its stores outside of price, and ongoing deflation represent meaningful headwinds for WMT,” Kelly wrote. He added that management was investing heavily to address the issue and strengthen Wal-Mart’s competitive position in the US.

Key Driver Of Stock Performance

U.S. comp growth has been the key driver of Wal-Mart’s stock performance and should continue. Although comp growth of 1.0-1.5 percent “isn't overly impressive,” several peers have witnessed declines, Kelly noted. He added, “Further investments should drive continued top-line gains, although the ultimate return is still uncertain.”

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