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

Walmart WMT released its fiscal first-quarter earnings report on Feb. 20. Here’s Morningstar’s take on Walmart’s earnings and stock.

Key Morningstar Metrics for Walmart

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

What We Thought of Walmart’s Earnings

We plan to modestly raise our value estimate of $58 per share for Walmart following its strong fiscal 2025 fourth-quarter earnings, as we expect the firm to increase profits faster than sales for the foreseeable future. Results closely aligned with our forecast, as the retailer’s low prices and convenient omnichannel offerings translated into continued share gains in its domestic market. Double-digit growth in high-margin profit streams such as advertising and membership income helped drive a robust 10% increase in adjusted earnings per share to $0.66 (slightly below our $0.68 estimate).

Despite Walmart’s continued outperformance relative to the retail industry, investors pushed shares down about 6% during intraday trading on Feb. 20. We believe that underwhelming guidance for fiscal 2026 was the primary culprit for the selloff, as management expects EPS to land in a range of $2.50-$2.60 next year, below our $2.76 estimate. We remain optimistic about Walmart’s ability to increase market share and expand margins in the longer term (we forecast a mid-cycle operating margin of about 5.5%, up from 4.4% in fiscal 2025), but continue to view shares, trading around 38 times next year’s expected earnings, as overvalued.

Comparable sales at Walmart US expanded 4.6% (in line with our forecast), from growth in transaction count and average ticket. Consistent with previous quarters, the grocery, health, and wellness categories drove the bulk of the gains. We were also pleased to see modest growth in general merchandise sales despite management citing price deflation across the category.

Results at Sam’s Club remained enviable, as comparable sales growth of 6.8% mainly stemmed from increased transactions. Membership income grew 13% due to new-member growth and higher premium tier penetration. We expect the warehouse club channel to outperform the broader retail industry and forecast 4%-5% comparable sales growth at Sam’s Club over the next couple of years.

Fair Value Estimate for Walmart

With its 1-star rating, we believe Walmart’s stock is significantly 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 slightly exceeds the 2.0%-2.5% organic growth rate that Walmart US posted over the past two decades. We believe Walmart is making the requisite investments today to continue attracting consumers to its stores 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 being a catalyst for pronounced organic growth. Rather, we view the firm’s 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 to consumer trends.

Read more about Walmart’s fair value estimate.

Economic Moat Rating

We believe Walmart warrants a wide economic moat rating, underpinned by a ubiquitous brand and a cost advantage. Walmart 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 landscape inherent in retail, we surmise that Walmart has carved out an enviable position, as the firm benefits from its proximity to the vast majority of US consumers–driving repeat foot traffic.

Walmart supercenters (over 3,500 in the US) provide an extensive product assortment at low prices, creating a convenient one-stop shopping experience for consumers. As such, we view Walmart’s seemingly unwieldy physical footprint as a strategic asset due to its entrenchment in US communities, allowing the firm to 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, allowing the firm to 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, as its $10 billion of cash on hand, $15 billion of undrawn lines of credit, modest outstanding debt, and history of positive operating cash flows enable the firm to 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 of 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 of Walmart’s ability to 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 penetration serves as the most formidable threat to Walmart’s traditional brick-and-mortar retail model. While Walmart’s 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 that of grocery, margin pressure could ensue over time if grocery becomes a larger part of its mix. Furthermore, Amazon has entertained the idea of expanding its physical presence in grocery beyond its existing Whole Foods and Amazon Fresh footprint. While we still view the threat to Walmart 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 merchandise’s perishability.
• 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 fulfillment capacity pale relative to Amazon’s AMZN scale. We posit Amazon can underprice Walmart on commissions, listing fees, and fulfillment services related to its marketplace.
• Sam’s Club has woefully underperformed Costco Wholesale COST 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 Aman Dagra.