Is Walmart Stock a Buy?

Price Target: $185 (22% upside)

Current Price: $152

Target Date: Q1 2024

Stock: Walmart ($WMT)

Retail has taken an absolute beating in the last 18 months.

From supply chain woes, to a glut of inventory right when inflation tanked consumer demand -- it's been tough managing the macro environment as any kind of seller.

The street has had reduced expectations for essentially every kind of major retailer going into the holiday season.

But in the last few weeks, we've seen a handful of companies separate from the pack and defy those expectations by getting inventory and costs under control enough to raise guidance and even post profits in Q3. 

An unsexy but strong standout in that group is Walmart, who have managed to put a few different strengths together to assemble a reasonably solid position rolling into this final sprint to Christmas.

Their inventory situation is under control, their e-commerce platform has momentum, and their grocery arm is driving a good chunk of revenue.

Profits are still technically down, but Walmart isn't taking nearly as bad a beating as the street expected them to. Righting the ship at this critical moment is huge for Walmart to keep achieving separation from the likes of Target, giving them the breathing room they need to really take on Amazon and suck up as much market share as possible. 

There's a lot more to cover on why this stock can deliver strong returns, so let's get into it 👇 

Walmart is Finally Winning in E-Commerce:

After years of completely botching their attempts to keep up with Amazon (anybody here remember Jet.com?) Walmart has finally really started making big gains in e-commerce thanks to consumer behavior from the COVID-19 pandemic. 

Click-and-collect orders (aka -> where consumers were able to buy online and then pick up their orders from their car) have driven a 16.5% increase in overall e-commerce sales in the last quarter alone.

This is allowing Walmart to move more product than ever before -- especially in its grocery vertical.

In Q3 for example, e-commerce drove $105 Billion in revenue for Walmart.

This is an outstanding beat that is being further compounded by the fact that Walmart was a leader in searches for Black Friday sales last week -- leaving Amazon all the way in 4th place behind Best Buy and Kohls. 

Walmart is dominating e-commerce all over, and that's driving down costs across the board. While profit is still down this quarter, it's down much less than the market expected.

This is driving a lot of positive sentiment that WMT can continue leveraging e-commerce to keep its costs under control and return to a healthy rate of profit growth. 

Grocery is Particularly Dominant:

Walmart has also grown its revenue in their grocery arm 20% in the past two years, which is a wild rate of growth for an operation as massive as Walmart.

Grocery revenue is particularly high in their pet and personal care verticals. All this has led to Walmart gobbling up more and more market share -- helping them cement their spot as the largest grocer in the US. 

This is one of those areas where inflation helps a little because Walmart can pass the cost of inflation onto the consumer in grocery, allowing them to surprisingly cut costs while maintaining revenue. 

And a critical flywheel is materializing in grocery as well because it's e-commerce growth that's driving a lot of grocery growth.

Higher-income households are using Walmart more and more as a time-saving measure for grocery shopping.

While Amazon is still struggling to make Amazon Fresh ubiquitous, click-and-collect combined with Walmart's wide-spread locations has allowed them to bring in more customers at a much lower cost.

It's a really strong position to be in -- especially with holiday revenue on the way.

Walmart Outlook:

Walmart is in a classic position where a company took a liability and turned it into a strength.

The mayhem caused by COVID-19 was a massive blow to retail worldwide, and rivals like Target are still hurting badly from all the resonating after-effects of those initial lockdowns in 2020. 

But rather than allow those to weigh them down -- Walmart used lockdown consumer behavior to finally break into e-commerce and turn that e-commerce growth into solid grocery growth as well.

WMT is an unparalleled master of nationwide logistics, and e-commerce is allowing them to leverage that in a way where they can turn their relatively strong inventory position into a profit-generating powerhouse as we grind through the back half of this downturn. 

While consumer spending is of genuine concern, Walmart is mitigating the risks a full-on recession may pose by shifting more towards grocery and everyday necessities.

Truly, WMT is growing in all the right ways at the exact right time.

Their growth will come at the expense of weaker nationwide retailers -- but at the very least we're excited that retail is looking capable of producing winners again.

On the surface, this may look like a boring pick, but it couldn't be further from the truth.  

Rating: Overweight

Market Cap: $414B

P/E Ratio: 47x

Dividend Yield: 1.47%

Risk/Reward: Medium/Medium