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

Walmart WMT released its third-quarter earnings report on Nov. 19. Here’s Morningstar’s take on Walmart’s earnings and stock.

Key Morningstar Metrics for Walmart

• Fair Value Estimate: $58.00
• Morningstar Rating: 1 star
• Economic Moat: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Walmart’s Q3 Earnings

• Consistent with the first half of fiscal 2025, Walmart’s low prices and convenient digital options helped drive continued top-line growth. Its US segment delivered 5% comparable sales growth, led by a 3% uptick in transactions. Sam’s Club also delivered an impressive 7% increase in comp sales, underpinned by a 6% growth in transaction count.
• We think the retail behemoth is uniquely positioned to continue taking market share as consumers grow increasingly selective with their spending. The firm’s convenient array of fulfillment options also continues to resonate with shoppers, as domestic e-commerce sales increased more than 20%.
• Operating margin for Walmart US expanded 10 basis points to 4.7% as continued improvement in e-commerce fulfillment and membership income helped offset higher marketing and weather-related expenses. As the benefits of supply chain automation gradually materialize and higher-margin revenue streams such as advertising continue to scale, we think the segment can deliver an operating margin of around 6.5% in the longer term.
• Despite our positive outlook, we think Walmart’s shares look overvalued relative to our fair value estimate of $58 per share.

Fair Value Estimate for Walmart

With its 1-star rating, we believe Walmart’s stock is overvalued compared with our long-term fair value estimate of $58 per share. Over a longer-term horizon, we expect Walmart US (about 70% of total sales) to deliver low-single-digit top-line growth. We note that Walmart has reached its effective peak in physical store count, and we expect the retailer to instead deliver the bulk of its growth through increases in comparable store sales. Our estimate of 3.0% comparable store sales growth is underpinned by modest growth in both volume and price, and it slightly exceeds the 2.0%-2.5% organic growth rate Walmart US posted over the past two decades.

We believe Walmart is making the requisite investments to continue attracting consumers and driving customer loyalty. We expect e-commerce penetration to approach 18% of domestic sales by the end of our explicit forecast, but we don’t view the firm’s omnichannel investments as a catalyst for pronounced organic growth. Rather, we view these investments as an opportunity for Walmart to solidify its existing customer base and take some incremental share from smaller brick-and-mortar retailers that fail to adapt.

Read more about Walmart’s fair value estimate.

Economic Moat Rating

We believe Walmart has a wide moat, underpinned by its cost advantage and a ubiquitous brand associated with low prices in its domestic market. The company is the largest retailer in the United States, with over $440 billion in annual sales and a massive store footprint of over 4,600 domestic namesake locations. Despite the fragmented and competitive retail landscape, we surmise that Walmart has carved out an enviable position, benefiting from its proximity to the vast majority of US consumers.

We view Walmart’s seemingly unwieldy physical footprint as a strategic asset due to its entrenchment in US communities, which lets it serve customers through multiple channels. Furthermore, the firm leverages its unmatched scale by spreading its omnichannel and distribution investments over a wider sales and profit base, letting it adapt to the dynamic retail environment while maintaining robust profitability.

Read more about Walmart’s economic moat.

Financial Strength

We believe Walmart boasts a solid financial position. The firm’s $10 billion in cash on hand, $15 billion of undrawn lines of credit, modest outstanding debt, and history of positive operating cash flows let it continue reinvesting in the business while making shareholder distributions.

Walmart typically keeps its net debt/EBITDA level between 1.0 and 1.6 times, while debt/cash from operations has remained below 2.5 times. We view Walmart’s debt service payments on its $40 billion in debt as of its fiscal 2025 third-quarter end as predictable, and its 10-year average interest coverage ratio of nearly 12 times is a formidable indicator that it can seamlessly manage its obligations. The firm’s debt maturities also appear adequately spread out, with most of its long-term debt coming due after fiscal year 2028.

Read more about Walmart’s financial strength.

Risk and Uncertainty

We assign Walmart a Medium Uncertainty Rating. The rise in e-commerce is the most formidable threat to the firm’s traditional brick-and-mortar retail model. While its sales are underpinned by grocery items (60% of domestic sales), which tend to be more insulated from online penetration, we surmise Walmart faces tough online competition for sales of general merchandise such as electronics, apparel, and home decor, which is unlikely to abate anytime soon.

Given the higher margins that merchandise sales typically carry over grocery, margin pressure could ensue if that business becomes a larger part of Walmart’s mix. Furthermore, Amazon.com AMZN has entertained expanding its physical presence in grocery beyond Whole Foods and Amazon Fresh. While we view this threat as low due to Amazon’s lack of physical storefronts, it is worth monitoring competition from the corporate behemoth.

Read more about Walmart’s risk and uncertainty.

WMT Bulls Say

• Margin pressure should abate as Walmart’s recent investments in omnichannel fulfillment and its third-party marketplace continue to scale.
• Walmart’s vast grocery offering insulates the firm from digital competition, given the perishability of the merchandise.
• Walmart’s recent investments in supply chain automation should drive margin expansion. The firm may also reinvest the cost savings to hold down prices and drive foot traffic to its stores—a benefit relative to many smaller retailers.

WMT Bears Say

• Walmart’s third-party marketplace and third-party fulfillment capacity pale relative to Amazon’s scale. We posit that Amazon can underprice Walmart on commissions, listing fees, and fulfillment services related to its marketplace.
• Sam’s Club has woefully underperformed Costco in recent years, and the brand does not provide a compelling value proposition that would allow Sam’s to take share.
• Walmart’s sales mix of higher-margin general merchandise categories stands to decline due to strong digital penetration, prompting long-term margin degradation.

This article was compiled by Kayleigh Hall.