Walmart: Despite Competitive Prowess, Shares Are Far From a Bargain; Fair Value Estimate Lowered

Against an ultra-competitive backdrop, we lowered our fair value estimate on wide-moat Walmart WMT to $145 per share from $152 due to a slight pullback in our near-term profitability forecast and more modest assumptions regarding the firm’s long-term return on invested capital.

Even with this, we haven’t wavered on our acknowledgement that Walmart serves as the nation’s preeminent retailer, boasting over $420 billion in domestic namesake sales and a store network of over 4,700 locations. The firm’s resounding presence in grocery and promise of low prices resonates with consumers regardless of the economic backdrop, driving repeat foot traffic. Walmart’s proximity to the majority of U.S. consumers further solidifies the firm’s unmatched access to consumers’ wallets.

With an impressive physical footprint and vast financial resources, Walmart should adequately adapt to a dynamic retail environment, distancing itself from brick-and-mortar peers. The retailer has invested aggressively to enhance its digital presence and customer engagement through the likes of its Walmart+ subscription offering, third-party online marketplace, and fulfillment services. While these investments have weighed on margins in recent years, we believe the firm is poised to deliver modest margin expansion as its fulfillment services scale and supply chain automation materializes.

With that said, we lowered our long-term return on invested capital estimate for Walmart due to the additional infrastructure required to operate in an omnichannel capacity. We caution investors from viewing Walmart’s recent investments as a catalyst for pronounced growth. The firm still faces stiff competition, particularly from Amazon, as it relates to Walmart’s third-party marketplace and fulfillment services. We view Walmart’s investments as an opportunity to take modest market share from smaller brick-and-mortar retailers, but not as an avenue to develop a digital ecosystem like Amazon.