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Lower Profitability a New Normal for Walmart

Lower Profitability a New Normal for Walmart

John Brick: Walmart reported fourth-quarter earnings this morning which showed a continuation of its strong top-line growth. E-commerce sales were up 23%. U.S. same-store sales were up 2.6%, really showing the firm's ability to drive traffic.

The shares were down almost 10% in the early hours as people were diagnosing the strong competition in the space; their higher costs associated with shipping and e-commerce front; and third, the firm's investment in technology and in-store initiatives. All of this together really has dampened the firm's profitability and have constrained it longer term, and we think it's more of a new normal, a lower profitability for Walmart.

Shares are trading at about $95. We believe investors should wait for a higher margin of safety, as our fair value is $88.

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About the Author

John Brick

Equity Analyst

John Brick, CFA, is an equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers retail defensive names, including large general merchandise retailers, sporting good manufactures, and grocery/distribution names.

Before joining Morningstar in 2017, Brick worked at Arkansas-based Stephens Inc. where he covered various consumer companies. Prior to that, he worked at Chicago-based Vilas Capital, where he was a generalist on a long-short hedge fund. Brick began his career at Northern Trust as a private equity analyst.

Brick earned a bachelor’s degree in finance, with minors in economics and decision sciences, from Miami University’s Farmer School of Business. He holds the Chartered Financial Analyst® designation.

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