Analysts see more upside with Walmart stock after the holiday season

Retail giant Walmart has drawn mixed sentiment among equity analysts in recent days despite returning strong fiscal third quarter results, garnering applause for navigating the ongoing supply chain disruptions, and reporting 11.5% more inventory ahead of the holidays.

Shares of Walmart (NYSE: WMT) rallied to close at $143.16 on Thursday after tumbling 3.3% since the company’s earnings report early Tuesday (Nov. 16). Shares closed Friday at $143.38, down 79 cents. The price in the past 52 weeks has ranged between $153.66 and $126.28.

Analysts said Walmart did experience softer margins in the quarter and despite the retailer’s increased full-year guidance, traders took profits in recent days as the stock was up 18.36% from trough to peak since March. Two analysts who follow Walmart for investors reaffirmed their “buy” recommendations and bullish outlook for the Bentonville-based retailer following the stronger-than-expected comp sales growth on Tuesday.

Ben Bienvenu, an analyst with Little Rock-based Stephens Inc., said Walmart is demonstrating its ability to lead during a time of unprecedented supply chain disruption and levels of inflation not seen in more than a decade. (Stephens conducts investment banking services for Walmart on occasion and is compensated accordingly.)

“The company played offense on numerous fronts over the last few years and we think Walmart is poised to leverage its scale to lead on price and take market share while also delivering accelerated earnings growth as we move through next year,” Bienvenu said in a Nov. 17 note to investors.

He raised his target price for Walmart to $170, an indication Stephens expects upside share growth into 2022. Bienvenu was encouraged by strong sales Walmart reported in its fiscal third quarter. He said the 11.5% increase in inventory for the holiday season represents a Herculean effort in light of the supply chain challenges.

“Walmart is prepared for a solid holiday season,” he noted.

He is also a fan of how Walmart was able to mitigate the rising cost of doing business in the quarter with meaningful contributions from the Walmart Connect advertising unit, marketplace and other additional revenue streams.

Sam’s Club posted stellar comp sales of 13.9% in the quarter, up 25% on a two-year stack. Membership income is a key metric for clubs as it is the main way they make money. Bienvenu said Sam’s did a good job lowering expenses and is continuing to grow membership revenue from new businesses and by upgrading more members to the premium Plus subscription at a higher price.Stephens raised its fiscal 2023 earnings guidance to $6.98 per share which would represent an 8% growth rate from this year.

Bobby Griffin, an analyst with Raymond James, matched Stephens’ $170 target price and sees plenty of upside heading into the holiday season and beyond.

“We continue to see Walmart as a long-term winner in today’s retail environment. In addition, we believe Walmart Connect has the potential to be a strong sales and margin contributor that is materially higher than the retailer’s other core businesses once scaled,” he said.

Griffin said Walmart is not cheap selling at 22-times earnings. He said Walmart’s business is not only defensible with new incremental service-based revenue streams, omnichannel capabilities and financial strength but it also has the leadership to win and the ability to grow market share in today’s retail environment.

“We would be buyers on this modest pullback of Walmart shares, heading into the holiday season,” Griffin noted in an investor report on Nov. 16.

Griffin also believes the fundamental drivers in Walmart’s recent e-commerce performance are permanent and the positive performance should continue over the coming quarters despite the challenges of comparisons. Walmart reported 8% growth in the recent quarter for the e-commerce business. This was on top of 81% growth reported last year. He said the challenged labor environment, higher wages and inflationary pressures will be worth watching in the next year even if supply chain disruptions abate.

Raymond James also raised its fiscal 2023 earnings guidance to $6.68 per share, up from $6.57 before the earnings call.