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

Walmart released its fiscal third-quarter earnings report on Nov. 20. Here’s Morningstar’s take on Walmart’s earnings and stock.

Key Morningstar Metrics for Walmart

• Fair Value Estimate: $60.00
• Morningstar Rating: ★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Walmart’s Q3 Earnings

Walmart’s third-quarter results included 5.8% net sales growth and adjusted earnings per share of $0.62. The firm continues to benefit from broad-based demand across income cohorts, while strength in digital and memberships helped lift gross margins up 19 basis points to almost 28% for Walmart US.

Why it matters: Despite strained consumer spending, Walmart bucks the trend as shoppers flock to the store due to its value proposition—convenience at a low price. This is evident in its digital offerings, as e-commerce revenue grew 27% globally, led by omnichannel pickup and delivery.

• Value-led traffic growth, resilient grocery demand, and strong digital engagement (online marketplace sales up 17%) helped Walmart US post 4.5% comp sales growth, despite mix headwinds. We believe these drivers underscore the format’s appeal across income levels.

The bottom line: We expect to lift our $60 fair value estimate by a low-single-digit percentage on a higher full-year sales outlook (4.8% versus 4.2%), stemming from a 50-basis-point comp sales hike, partly offset by a 20-basis-point reduction in operating margin for Walmart US.

• We view Walmart’s shares as more than 70% overvalued, with the current price implying operating margins hold above prior peaks of 6%—a level we see as unrealistic, given intense competition.
• While we see shares as overvalued, Walmart remains well-positioned to benefit from the shift to e-commerce. Its scale and expanding digital offerings support price investments, and we expect these profit streams to exceed 25% of operating income over our forecast horizon.

Coming up: Management struck an optimistic tone on the holiday season, which historically drives 25%-30% of Walmart’s annual sales. We think its investments in merchandising and the omnichannel experience should continue to win with value-conscious consumers during this critical period.

Fair Value Estimate for Walmart Stock

With its 1-star rating, we believe Walmart’s stock is significantly overvalued compared with our long-term fair value estimate of $60 per share, which implies a fiscal 2027 EV/adjusted EBITDA multiple of 12 times.

Amid inflation and retail trade-down, domestic operations remain the core driver of Walmart’s financial prospects, accounting for nearly 70% of revenue and operating income. We forecast US revenue to grow at a 3.6% CAGR supported by modest ticket gains and resilient traffic trends. Growth is underpinned by Walmart’s dominant 32% share of online grocery and expanding 18% digital sales mix, which continue to capture convenience-driven demand as e-commerce drives smaller, more frequent baskets akin to Amazon. Grocery, which accounts for about 60% of US sales, anchors recurring visits and supplier leverage while monetizing higher-margin categories like general merchandise, health, and private label.

Read more about Walmart’s fair value estimate.

Economic Moat Rating

We assign Walmart a wide moat, grounded in its industry-leading cost structure and stout brand intangible assets. We surmise that these competitive advantages will remain durable due to Walmart’s unmatched scale, operational discipline, and continuous reinvestment in technology and infrastructure. These advantages are most evident in the company’s US operations, while Sam’s Club demonstrates more modest but defensible strengths.

In contrast, Walmart’s international arm lacks sufficient scale and differentiation in most markets to earn an economic moat, in our view. Quantitatively, Walmart’s consolidated return on invested capital has consistently exceeded our estimate of its weighted average cost of capital (7.3%) with a five-year average return of 12.7%. We believe that as Walmart continues to invest in strengthening its competitive position, its ROIC will remain above its WACC for at least the next two decades.

Read more about Walmart’s economic moat.

Financial Strength

We see Walmart’s financial health as exceptionally durable, anchored by a conservative capital structure and strong free cash flow generation. The firm balances one of the largest revenue bases in the world with a debt profile that is both manageable and deliberately structured to support reinvestment.

Read more about Walmart’s financial strength.

Risk and Uncertainty

We assign Walmart a Medium Uncertainty Rating, reflecting the stability of its grocery-led business but acknowledging structural risks that could reduce cash flow growth.

The most significant risk to the business stems from competition in general merchandise, where Amazon, Shein, Temu, and other digitally native retailers have been eroding Walmart’s US market share (10.6% compared with 13.6% five years prior). While grocery provides defensive stability (given the consistent purchasing frequency), an increasing reliance on low-margin food sales could weigh on profitability if discretionary categories underperform (with general merchandise sales falling almost 10% since fiscal 2022). Our forecast assumes Walmart defends its low double-digit share in general merchandise and holds its online grocery leadership through further online marketplace penetration; deviation from this path could pressure both revenue growth and margins.

Read more about Walmart’s risk and uncertainty.

WMT Bulls Say

• Walmart Connect is profitably compounding sales at a high-double-digit rate, with 70% operating margins, creating a durable profit stream as it captures retail media advertising spending using real-time data from 255 million weekly shoppers.
• Expansion of private label penetration boosts margins while reinforcing Walmart’s value message and defending its share.
• Walmart+ adoption drives nearly twice as much shopping frequency per member, reinforcing share gains with fuel, delivery, and media perks appealing to higher-income households.

WMT Bears Say

• Digital native rivals like Amazon, Shein, and Temu could erode wallet share in discretionary categories, which make up 25% of Walmart’s sales and carry higher margins than grocery.
• Rising employee wages (up 30% in five years) and raw material inflation could outpace productivity gains, constraining margin improvement.
• International operations may fail to scale and realize the same level of brand resonance in the US, with past failures in the UK, Germany, and Argentina, which would depress returns on invested capital.

This article was compiled by Frank Lee.