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Is Walmart Stock a Buy, Sell, or Fairly Valued After Earnings?

With solid first-quarter earnings, here’s what we think of Walmart stock.

Walmart store
Securities In This Article
Walmart Inc
Target Corp
(TGT) Inc

Walmart WMT released its first-quarter earnings report on May 18, 2023. Here’s Morningstar’s take on what to think of Walmart’s earnings and stock.

Walmart Stock at a Glance

What We Thought of Walmart Q1 Earnings

Walmart’s earnings were largely in line with our expectations. We saw nothing to contradict our overall thesis: Walmart will remain relevant in an omnichannel retail world, and the company is more advantaged than Target TGT because of its scale and importance to vendors. We believe the firm’s scale enables procurement and cost leverage that allows it to be particularly aggressive in the pricing it offers its patrons, factors that are difficult to replicate.

Revenue rose 7.6% with broad-based strength (7.4% adjusted comparable sales expansion at Walmart U.S. and a 7.0% increase at Sam’s Club, and 12.9% constant-currency net sales growth at Walmart International). We still expect low-single-digit annual top-line growth rates and mid-single-digit operating margins over the long term. Walmart trades near our valuation, and we suggest prospective investors await a greater margin of safety before taking a position, considering ongoing retail upheaval as the sector continues to digitize.

Walmart Stock Price Chart

walmart stock price in the last year

Fair Value Estimate for Walmart Stock

With its 3-star rating, we believe Walmart stock is fairly valued, in line with our long-term estimate.

We are lifting our valuation of Walmart to $152 per share from $148, reflecting the time value of money after the company posted solid first-quarter sales (8% revenue growth, as consumers facing inflation and an unsettled economy looked for value). Our valuation implies forward fiscal 2024 enterprise value/adjusted EBITDA of 12 times and adjusted P/E of 24.

Fiscal 2024 should remain choppy as economic uncertainty strains consumer pocketbooks but highlights Walmart’s value proposition.

We expect Walmart’s online offerings to drive nearly 3% comparable growth in its namesake domestic division (around 70% of fiscal-2023 sales) long term. We assume low-double-digit percentage annual digital growth long-term as Walmart’s omnichannel strength builds. Scale and cost leverage should fuel aggressive pricing rather than higher profitability, with fiscal 2023′s 5% segment operating margin essentially holding long term.

Walmart faces an intensely competitive retail environment. Customer habits are unsettled, and as switching costs are negligible, the long-term structure of the retail industry is in flux. The performance of Walmart’s ongoing transformation and the ultimate shape of customer fulfillment demand could lead performance to deviate from our expectations.

In a downside case, the competitive environment could exact a greater toll, with rising fulfillment costs creating ongoing margin pressure beyond our expectations. A move by AMZN to offer a more broadly targeted, lower-cost version of Prime could force more direct competition with Walmart’s core customers and membership program. Separately, smaller firms could prove more agile in adapting to an omnichannel future, creating potential to draw away traffic.

On the other hand, Walmart’s omnichannel efforts could outperform our expectations. The firm’s broad e-commerce assortment, including its marketplace offering and the convenience afforded by in-store returns, could allow it to compete more successfully than we anticipate in the ship-to-home channel (our baseline scenario assumes Walmart has more of an advantage in click-and-collect).

Walmart Stock Price Chart

Ratios over 1.00 indicate when the stock is overvalued, while ratios below 1.00 mean the stock is undervalued.
Ratios over 1.00 indicate when the stock is overvalued, while ratios below 1.00 mean the stock is undervalued.

Read more about Walmart’s fair value estimate.

Economic Moat Rating

We contend that Walmart’s standing as the dominant traditional retailer (and the number-one grocer) in the United States has allowed it to develop intangible assets and a durable cost advantage that justify a wide moat rating. While the retail sector has been roiled by digitization and under constant pressure as Amazon builds scale, we believe Walmart is uniquely positioned to compete with the digital head-on. Although switching costs are negligible in the sector, we believe Walmart’s ability to use its scale to hold down costs and leverage its retailer relationships and established low-cost brand should protect returns for decades to come. Our forecast is consistent with this conclusion; we expect Walmart’s return on invested capital to average around 15% (or 17% if goodwill is excluded) over the decade ahead, comfortably ahead of our 7% weighted average cost of capital estimate.

In the United States, we believe Walmart benefits from a well-established brand that has become virtually synonymous with low-cost items, a product of its unparalleled purchasing leverage and deep vendor relationships. With stores located within 10 miles of 90% of the U.S. population (Walmart had roughly 2.5 times no-moat Target’s store count domestically as of the end of each chain’s last fiscal year, excluding Sam’s Club), we believe the company provides a blend of value and convenience unmatched by other traditional retailers. Walmart benefits from a virtuous cycle, with its low prices spurring shopper traffic (and revenue). The resulting cost leverage allows it to be even more aggressive with pricing, sidestepping the traffic pressure that other retailers have faced as channels shift.

Outside the United States, we believe Walmart enjoys a similar competitive standing as its namesake U.S. stores in the markets in which it operates. Walmart has done well to combine its own banner with a variety of locally recognized marquees, including Jumbo Cash and Carry in Africa and Superama and Bodega Aurrera in Mexico. We support its recent efforts to focus its international portfolio on core growth markets (including Mexico, Canada, India, and China), including the sale of its operations in Argentina, Brazil, the United Kingdom, and Japan.

Walmart’s broad distribution network in the United States that encompasses urban, suburban, and rural markets, coupled with access to international customers in a variety of locales, makes it a particularly attractive partner for vendors with broad product portfolios targeted toward global and regional tastes.

While Walmart’s e-commerce efforts are still nascent (at around 14% of fiscal-2023 sales), we anticipate it is better positioned than other traditional retailers considering its already-efficient operations, low procurement costs, and dense network of stores.

Read more about Walmart’s moat rating.

Risk and Uncertainty

We assign Walmart a Medium Uncertainty Rating.

The pandemic and subsequent inflation and supply chain challenges roiled retail, but we expect little long-term change for Walmart’s standing. Near-term results are more uncertain than usual, with Walmart facing an uncertain economy, but it should prove resilient. In the long run, with competition rife, Walmart faces a landscape demanding strong execution across a range of channels. Consumer habits are far from settled as retail digitizes, and we expect the sector to remain turbulent.

Walmart’s size and success have made it a frequent target of politicians and subject it to a level of media scrutiny that few other retailers face, creating social risk. A regulatory or public backlash (which could include resurgent efforts to unionize its domestic workforce) could impose reputational and financial costs. As Walmart’s online sales grow, the management of customer data also adds social risks. Still, we believe these risks are manageable and do not pose a material threat.

Despite its size, Walmart is not immune to costs imposed by wage laws, trade policy, and the state of the global economy. The competitive environment leaves little potential succor from pricing.

Read more about Walmart’s risk and uncertainty.

WMT Stock Bulls Say

  • As America’s largest retailer, Walmart should be able to capitalize on its store network and digital investments to deliver a compelling omnichannel retail experience that no traditional rival can match.
  • Walmart boasts purchasing leverage that allows it to minimize procurement costs and to keep prices low and traffic high.
  • Inflation and economic uncertainty have lifted near-term sales, with Walmart’s historic steadiness in recessions and position as a value leader suggesting it will be able to navigate turbulent conditions.

WMT Stock Bears Say

  • Competition is fierce throughout retail, and Walmart will have to innovate to keep pace not only with Amazon but also physical retailers that are increasingly investing in omnichannel capabilities.
  • Amazon has a sizable lead in its marketplace and membership offerings; while Walmart should have room to build its offering, we believe its third-party seller platform is well behind, and its Walmart+ will take time to reach its potential.
  • Sam’s Club lags well behind Costco in sales, profitability, and (we suspect) member attachment; the gulf will likely persist.

This article was compiled by Muskaan Hemrajani.

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The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Zain Akbari

Equity Analyst
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Zain Akbari, CFA, is an equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers food companies, auto parts retailers, and information services firms.

Before joining Morningstar in 2015, Akbari spent several years at UBS, most recently leading the firm’s Liability Management, Americas team. During his time at UBS, Akbari structured and executed bond buybacks, exchange offers, and covenant modifications for investment-grade, high-yield, and convertible securities issued by American and Asian companies.

Akbari holds a bachelor’s degree in finance and real estate from The Wharton School of The University of Pennsylvania and master’s degree in business administration from the University of Chicago Booth School of Business.

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