November 17, 2023 $156.60 [1:45 pm ET]
Business Overview:
Walmart Inc. is an omnichannel retailer serving customers via stores, online, and through their mobile devices. Approximately 240 million customers and members visit approximately 10,500 stores and numerous eCommerce websites in 19 countries weekly. With fiscal year 2023 revenue of $611 billion, Walmart employs approximately 2.1 million associates worldwide.
Maverick Guidance:
- Short-term: BUY ON WEAKNESS.
- Following the P&F Ascending Top Break-out on 30-Oct-2023 (Weekly data), which was confirmed by the earnings released today, we rate WMT a LONG-TERM BUY.
- Previously, we had rated the stock a MODERATE BUY, reducing it from BUY after the Point & Figure chart High Pole Warning early in October.
- Despite the strong Q3 earnings, the stock price has slightly declined in the month since our previous report. Immediately after the news release, which was entirely positive, financial television delivered an overwhelming narrative that consumer spending is on the decline, negatively impacting October results for Walmart and likely for the quarters ahead.
- Within hours of the Walmart Earnings Report release, WMT was down almost -8.0%, further proving that Wall Street promotes volatility that its traders take advantage of. Mavericks must avoid short-term volatility other than at decision points when they are able to seize the opportunities of buying into weakness and selling into strength, i.e., the Wall Street Way.
Consideration for Maverick Portfolios:
- The stock is a staple in our Moderate Growth portfolio but would also be appropriate for the Conservative, Cautious Growth, and Dynamic Growth portfolios.
Market Guidance:
- Technical Analysis (based on Technical Indicators and Moving Averages):
- Investing.com = Daily: STRONG SELL Weekly: NEUTRAL
- TipRanks = Daily: BUY Weekly: BUY
- Consensus Analyst ratings: TipRanks STRONG BUY, MarketBeat MODERATE BUY
- 27 Buy 4 Hold 0 Sell — Based on 31 analysts giving ratings to Walmart (TipRanks)
- Based on 31 Wall Street analysts offering 12-month price targets for Walmart in the last 3 months. The average price target is $181.03, with a high forecast of $210.00 and a low forecast of $165.00. The average price target represents a +15.7% change from the last price of $156.37.
Value Line Guidance:
- Company Financial Strength Rating: A++
- Share Price Safety, Market Timing, Technical Rank: 1=best. 5=worst
- Share Price Safety: 1 of 5 (outstanding)
- Long-term Market Timing: 2 of 5 (good)
- Technical Rank (3 to 6 months): 2 of 5 (good)(upgraded this week)
- Stock’s Price Stability: 100/100
- Price Growth Persistence: 70/100
- Earnings Predictability: 100/100
- Revenue Growth Potential: 5.0%
- Cash Flow Growth Potential: 5.0%
- Earnings Growth Potential: 6.5%
- 10-year Average Annual Total Return: +10.27% (end date 11/15/23)
- EPS
- 2000: $5.55
- 2021: $6.46
- 2022: $6.29
- 2023: e$6.50
- 2024: e$7.15
- Trailing Twelve Month PE: 23.9
- Projected Average Annual PE: 25.0
- Average Annual Revenue Growth in the past 5 years: 5.5%
- Average Annual Revenue Growth for the next 5 years: 5.0%
- Average Annual Earnings Growth in the past 5 years: 6.5%
- Average Annual Earnings Growth for the next 5 years: 6.5%
- Average Annual Dividend Growth in the past 5 years: 2.0%
- Average Annual Dividend Growth for the next 5 years: 5.%
- Average Annual Dividend Yield for the next 3 to 5 years: 1.4%
Revenue, Cash Flow, Earnings Quarterly Operations Review of Previous Quarters:
Quarter ending October 2023: [Reported Nov. 16]
- Walmart Inc. reports strong Q3 results with a 5.2% growth in consolidated revenue, reaching $160.8 billion.
- The omnichannel model contributes to strong comp sales, including a 4.9% increase for Walmart U.S.
- Net sales guidance for FY24 is raised to +5.0% to +5.5%, along with adjusted EPS guidance of $6.40 to $6.48.
- Q3 highlights include consolidated gross margin rate up 32bps, operating expenses as a percentage of net sales down 182bps, and consolidated operating income up $3.5 billion.
- Global advertising business grows around 20%, with Walmart U.S. comp sales up +4.9% and eCommerce up +24%.
- Adjusted EPS of $1.53 excludes the effects of $1.36 from net losses on equity and other investments.
- The balance sheet shows cash and cash equivalents of $12.2 billion, total debt of $55.4 billion, operating cash flow of $19.0 billion, and free cash flow of $4.3 billion.
- Walmart U.S. sees growth in transaction count, eCommerce up +24%, and Walmart Connect advertising sales growing +26%.
- Walmart International experiences growth in net sales led by Walmex and China, with eCommerce sales declining -3% and advertising growing by +4%.
- Sam’s Club U.S. reports solid comp sales, growth in eCommerce of +16%, and a +27% increase in advertising business.
- Guidance for fiscal year 2024 includes a non-GAAP outlook, assuming stable consumer conditions and continued pressure from the global mix of products and formats.
- The guidance is based on disclosed FY23 figures: Net sales: $605.9 billion, adjusted operating income: $24.6 billion, and adjusted EPS: $6.29.
Quarter ending July 2023:
- Walmart’s July-quarter adjusted earnings per share exceeded expectations, showcasing a +4% year-over-year growth.
- Despite challenging economic conditions, domestic same-store sales increased by +6.4%, driven by strong grocery and health & wellness performance.
- General merchandise sales experienced a slight improvement from the previous quarter, and gross margins grew by +50 basis points, aided by strategic price increases and higher ad revenues from vendors on walmart.com and the Walmart app.
Quarter ending April 2023:
- In the April quarter, Walmart shifted customer spending from discretionary general merchandise to grocery and health & wellness due to persistent inflation.
- The company faced challenges with elevated prices, leading customers to opt for private labels over national brands, particularly in the dry grocery category.
- The company tried to close the gap with Amazon through its Walmart Connect advertising platform, which recorded substantial revenue growth, benefiting from the growing e-commerce business.
Quarter ending January 2023:
- Walmart emphasized its focus on gaining market share in general merchandise categories, prioritizing private labels, and streamlining its supply chain during the investor day in January.
- The company is investing significantly in automation, expecting reduced average unit costs and improved distribution efficiencies soon.
- Walmart aims to bridge the gap between sales and operating income growth by focusing on cost-saving initiatives and improving the profitability of its e-commerce operations.
Operations 3-to-5-year Outlook (Revenue, Cash Flow, Earnings):
- Walmart anticipates continued strong growth in its online advertising revenue and e-commerce business.
- Cost-saving measures, especially automation, are expected to reduce unit costs and improve distribution efficiency by fiscal 2025.
- The company aims to improve the profitability of its e-commerce operations and bridge the gap between sales and operating income growth over the coming years.
Internal Strengths/Weaknesses
Key Strengths:
- Economies of scale
- Efficient operations
- A strong brand
- A diversified business model
- Financial strength.
Weaknesses:
- Limited international growth due to cultural disparities, regulatory obstacles, and local competition
- Dependence on Low Prices, which constrains profit margins
- Intense rivalry with online giant Amazon
External Opportunities/Threats
Opportunities:
- E-commerce: Walmart can still grow its e-commerce market by investing in online platforms, delivery logistics, and digital marketing
- International Expansion: Leveraging its economies of scale and supply chain expertise, Walmart could expand into new markets and compete with local retailers
- Sustainability: To attract environmentally-conscious consumers, Walmart might invest in sustainable practices like renewable energy, waste reduction, and responsible sourcing
- Health and Wellness: Expanding its health-related offerings, Walmart could build its pharmacy business, offer organic and natural products, and explore digital health services
- Innovation: To stay competitive, Walmart can develop its technologies, including AI and data analytics, and explore innovative retail formats like pop-up stores and mobile shopping
Threats:
- Intense Competition: Walmart faces competition from traditional (Target, Costco) and online (Amazon) retailers, driving the need for competitive pricing and innovation.
- Changing Consumer Behavior: Evolving consumer preferences, particularly among younger shoppers, who favor online shopping and quicker deliveries, challenge Walmart’s traditional stores.
- Economic Downturns: Walmart is susceptible to economic downturns, impacting sales and profitability due to reduced discretionary spending during financial hardships.
- Regulatory Environment: Heavy industry regulations and tax changes, such as import tariffs, can significantly affect Walmart’s financial performance.
- Cybersecurity Threats: As a data-collecting entity, Walmart is at risk of cybersecurity threats, potentially resulting in reputation damage and legal liabilities.
10-Year Historical Price Chart:
Point & Figure Chart: (from StockCharts.com)
https://stockcharts.com/freecharts/pnf.php?c=WMT,PWTAMANRNO[PA][D][F1!3!!!2!20]
Ascending Top Break-out on 30-Oct-2023 (Weekly data)
