Wal-Mart downgraded by Goldman Sachs

Wall Street analysts at Goldman Sachs took a long look at big-box discounters this week and downgraded Wal-Mart Stores to neutral from buy, while upgrading competitor Costco to a buy.

Goldman analyst Matthew Fassler said Costco is on the “right side of the emerging divide in discount retailing.” He notes that membership-only clubs are stealing market share from super-stores like Wal-Mart and Target, and are seeing stronger traffic growth and customer renewal rates in the U.S. and overseas.

For Costco, Fassler points out that 30% to 40% of revenue growth is coming from the international arena.

Goldman also notes that the rise of e-commerce has prompted customers to see less value in general merchandise stores with large product assortments. Shoppers now prefer a combination of value and convenience, which analysts said they have found in narrow-assortment retailers like dollar stores, drug stores and warehouse clubs.

Goldman said Wal-Mart has become more focused on investing in online and small stores. But Fassler said these are understandable decisions but the time when the company is executing against them is not necessarily the most rewarding to own the stock.

Wal-Mart Stores shares closed Tuesday (July 29) at $75,44, down 27 cents. Wal-Mart shares are down 4% year-to-date.