October 20, 2023, $159.16
Business Overview:
Walmart Inc., started in 1962 by Sam Walton and incorporated in 1969, is a renowned American multinational retail corporation. Headquartered in Bentonville, Arkansas, it operates a vast network of about 10,500 stores and clubs in 19 countries under many names. In the US, its operations are segmented into Walmart US, Walmart International, and Sam’s Club. In Canada, since 1994, the company has about 400 stores. Their retail offerings include Supercenters, Discount Stores, Neighborhood Markets, and Small Formats. While its physical stores constitute a significant aspect of its business, Walmart’s eCommerce segment steadily contributes to growing total revenues.
Maverick Guidance:
- We rate WMT a MODERATE BUY, reducing it from BUY after the Point & Figure chart High Pole Warning early this month.
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.
Internal Strengths/Weaknesses
Key Strengths:
- Economies of scale
- Efficient operations
- A strong brand
- A diversified business model
- Financial strength.
Weaknesses:
- Limited international growth 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.
Wall Street Guidance:
- Analyst ratings: 25 Buy 4 Hold 0 Sell — Based on 29 analysts giving ratings for Walmart
- Based on 29 Wall Street analysts offering 12-month price targets for Walmart in the last 3 months, the average price target is $179.22, with a high forecast of $210.00 and a low forecast of $165.00. The average price target represents a 12.60% change from the last price (at the time of writing) of $159.16.
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: 6.55%
- 10-year Average Annual Total Return: +10.08% end date 10/19/23
- 10-year EPS Growth Rate: 3.00%
- EPS 2022: $6.29
- EPS 2023: e$6.50
- EPS 2024: e$7.15
- Average Annual PE: 22
- PEG Ratio: 17
- 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: 5.5%
- 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 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 focused 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 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.
Strategic Developments:
- The company’s focus on automation, digital innovation, and e-commerce penetration indicates a long-term commitment to improving efficiency and profitability.
- Walmart introduced a uniform hourly wage structure for entry-level employees, emphasizing cost-saving measures and supply chain optimization.
- Despite challenges posed by inflation and changing consumer behavior, Walmart remains focused on maintaining its market position and ensuring sustained growth.
10-Year Historical Price Chart:
https://tvc-invdn-com.investing.com/data/tvc_43e7e0dd892ba9c159125f43a021234e.png
Point & Figure Chart: (from StockCharts.com)
https://stockcharts.com/freecharts/pnf.php?c=WMT,PWTAMANRNO[PA][D][F1!3!!!2!20]
