Walmart Inc. WMT stands as a titan in the retail space, powered by its strong omnichannel presence, strategic diversification into high-growth areas, and solid financial health. The stock closed at $75.70 on Aug 23, shy of its recently hit 52-week high of $76.22 on Aug 22, reflecting strong investor confidence in Walmart's prospects.
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Over the past month, shares of this supermarket giant have gained 8.7% compared with the industry’s rise of 7.8%. Additionally, the company has outpaced the broader Zacks Retail-Wholesale sector and the S&P 500's respective growth of 3.5% and 2.9% during the same period. Trading above its 50-day and 200-day moving averages, Walmart's stock signals a continued bullish trend.
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The Power Behind Walmart’s Success
Like other leading players such as Costco COST, Target TGT and BJ’s Wholesale Club BJ, Walmart has significantly benefited from its robust omnichannel strategy. This approach seamlessly blends its extensive brick-and-mortar presence with a rapidly growing e-commerce platform, offering services like in-store pickup, same-day delivery, and ship-from-store options.
Walmart has been reinforcing its physical store network, which not only serves direct customer needs but also fulfills a substantial portion of the company’s e-commerce orders. The company is also focused on remodeling stores to integrate advanced in-store and digital innovations, along with enhancing its merchandise assortments. These initiatives strengthen Walmart’s competitive edge, enabling it to reach a broader customer base and boost sales volumes.
Moving on, Walmart's strategic investments in technology and e-commerce have solidified its position as a major force in the online retail space. Initiatives such as Walmart GoLocal, Walmart Luminate, Walmart Connect, and Sam’s Club MAP demonstrate the company’s dedication to improving customer experience and operational efficiency.
Also, Walmart's advanced delivery capabilities and innovative services have redefined retail logistics. With its Walmart+ membership program and services like Express Delivery, the company has bolstered its delivery capabilities. Markedly, in the second quarter of fiscal 2025, Walmart’s global e-commerce sales surged 21%, with increased penetration across all markets.
Diversification remains a cornerstone of Walmart's success. By venturing beyond traditional retail into areas like advertising, the company taps into new revenue streams. Its budding advertising business leverages vast consumer data, offering targeted marketing solutions that appeal to brands seeking effective outreach.
All these efforts have culminated in impressive stock performance, reflecting investor confidence and market validation.
Financial Strength Power an Attractive Dividend Strategy
Financially, Walmart stands on solid ground, which has helped the company in delivering consistent shareholder returns. The market bellwether has a robust dividend history, hiking dividends for 50 straight years now. This stable commitment to dividend growth underscores Walmart's financial flexibility and robust cash flow generation. In the second quarter of fiscal 2025, WMT generated an operating cash flow of nearly $12.1 billion and a free cash flow of about $5.4 billion.
During the quarter, the company paid dividends worth $1.7 billion and repurchased shares worth $1 billion. As of the second-quarter earnings release, the company had $14.5 billion remaining under its share buyback plan. Walmart currently has a dividend payout of 35% and a dividend yield of 1.1%. With an annual free cash flow return on investment of 7.5%, the dividend payments are likely to be sustainable.
What Estimates Say About WMT?
Walmart’s strong omnichannel initiatives and a highly diversified business have been contributing to its growth tale. Strengths like these, along with a promising advertising business and efficient cost-containment measures, pave the way for a bright future. Encouragingly, Walmart raised its guidance for fiscal 2025 on its last earnings call.
The company now expects fiscal 2025 consolidated net sales growth of 3.75-4.75% (at constant currency or cc) compared with 3-4% expected earlier. Consolidated operating income is expected to increase 6.5-8% at cc, up from 4-6% projected before. Walmart envisions adjusted earnings per share (EPS) for fiscal 2025 to be in the $2.35-$2.43 range, up from the prior guidance of $2.23-$2.37.
Reflecting the positive sentiment around Walmart, the Zacks Consensus Estimate for EPS has seen upward revisions. Over the past 30 days, analysts have increased their estimates for both the current and next fiscal year by 0.4% to $2.44 and by 1.1% to $2.70 per share, respectively. These estimates indicate expected year-over-year growth rates of 9.9% and 10.8%, respectively.
Is Walmart’s Path Free of Challenges?
Despite the aforementioned tailwinds, we acknowledge persistent consumer concerns over economic stability, illustrated by underlying inflationary pressure and a higher interest rate environment. These factors contribute to reduced consumer confidence and discretionary spending, particularly impacting non-essential categories within Walmart’s product portfolio.
Additionally, Walmart has been investing heavily in supply chain automation, e-commerce other technologies. While these investments are crucial for long-term growth, they represent significant capital expenditures and operational costs, which might affect short-term profitability. Walmart’s focus on maintaining low prices to attract customers can also pressure profit margins amid the high operational costs.
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We acknowledge Walmart’s strong market position, but the current high valuation presents a risk. We note that the stock is trading at a forward 12-month P/E ratio of 29.26, which exceeds the industry average of 26.79 and is also closer to its five-year high of 29.36. This suggests that investors may be paying a high price relative to the company's expected earnings growth. The current valuation levels may expose Walmart to an increased risk of a valuation correction should the company's performance not meet investors’ expectations. Currently, WMT has a Value Score of C.
Should You Cash Out or Hold Walmart Stock?
Walmart continues to demonstrate its formidable presence in the retail sector, bolstered by a robust omnichannel strategy, strategic diversification, and solid financial health. While economic uncertainties and a stretched valuation pose concerns, Walmart's proactive measures, promising growth estimates, and impressive stock price performance signal continued success for the company. All said, potential new shareholders might consider the current valuation before entering, but current stakeholders should maintain their position in this Zacks Rank #3 (Hold) stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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