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

Walmart released its fiscal 2026 second-quarter earnings report on Aug. 21. Here’s Morningstar’s take on Walmart’s earnings and stock.

Key Morningstar Metrics for Walmart

• Fair Value Estimate: $64.00
• Morningstar Rating: ★
• Economic Moat: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Walmart’s Q2 Earnings

Walmart’s fiscal 2026 second-quarter sales were up 4.6% in its US stores on a comparable basis, reflecting a 1.5% benefit from transactions and a 3.1% increase in average ticket. Gross margin expanded just 4.0 basis points to 24.5%.

Why it matters: Despite consumers’ financial constraints, Walmart posted solid top-line marks, illustrating the benefits of its scale, attractive price positions, and convenient digital shopping options, which stand to yield further market share gains.

• Even as tariffs add to costs in some aisles, the firm noted strength in discretionary categories such as apparel, media, gaming, and automotive, with general merchandise up low single digits.
• Management raised its fiscal 2026 outlook to 3.75%-4.75% (from 3.00%-4.00%) for sales growth and $2.52-$2.62 (from $2.50-$2.60) for adjusted earnings per share, generally squaring with our forecast.

The bottom line: We don’t foresee a change to our $64 fair value estimate for wide-moat Walmart. Although the shares fell by midsingle digits in Aug. 21 trading, we view them as pricey, trading more than 50% above our valuation.

• We attribute the market’s displeasure to Walmart’s lack of cost leverage on its recent sales gains. But we see this as an anomaly, pressured by costs around injury claims, and expect investments in supply chain automation to bolster its cost edge over time.
• Longer term, we believe the market is far too zealous as it pertains to Walmart’s ability to maintain outsize sales growth amid intense competition.

Between the lines: Investments to enhance the omnichannel offering are bearing fruit, with e-commerce sales up 25% in the quarter, an acceleration from the low 20s that had historically characterized the business.

• Engaging customers digitally while keeping compelling pricing gaps should bode well for long-term customer retention. We think these efforts have been a driving force for recent market share wins with higher-income households.

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 $64 per share. Over a long-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 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 to continue attracting consumers to its stores and driving customer loyalty. We expect e-commerce penetration to exceed 20% 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.

We expect Walmart to deliver modest margin expansion over our 10-year forecast as the firm’s fulfillment services scale and investments in supply chain automation–which we expect Walmart to aggressively pursue over the next five years–materialize into cost savings. Furthermore, Walmart’s technology investments and granular consumer data may unlock additional monetization via advertising revenue on its marketplace. Still, the retail environment is highly competitive, and we expect Walmart to recycle some of its margin expansion from operational efficiencies and lucrative revenue sources into holding down prices. We forecast a long-term adjusted operating margin of 5.8%, but do not expect the firm to reach this level for several more years.

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 resembling low prices in its domestic market and a cost advantage. Walmart is a leading retailer in the United States, with over $460 billion in annual sales and a massive store footprint of over 4,600 domestic namesake locations. Despite the fragmented and competitive landscape that is 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 $9 billion of cash on hand, $15 billion of undrawn lines of credit, modest amount of outstanding debt, and history of positive operating cash flows enables the firm to continue reinvesting in the business while making shareholder distributions. Walmart typically keeps its net debt/EBITDA level of 1.0-1.6 times, while debt/cash from operations has remained below 2.5 times.

We view Walmart’s debt service payments on its $46 billion of debt as of its fiscal 2026 first-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 the firm’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.

Many of the general merchandise items that Walmart sells (such as electronics, toys, and home products) are sourced in countries exposed to tariffs. While tariffs may negatively affect demand for these discretionary categories, Walmart’s prodigious exposure to the high- frequency grocery category should stabilize results.

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 its 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 fulfilment 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 Isela Meraz.