Walmart Earnings: Digital Momentum Buoys Margin as Consumers Seek Value; Shares Expensive

Key Morningstar Metrics for Walmart

• Fair Value Estimate: $60
• Morningstar Rating: ★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Walmart’s Earnings

Walmart WMT‘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. We model 4.1% annual revenue growth and nearly a 100-basis-point fiscal 2035.
• 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.