Is There More Upside For Highly-Valued Walmart (NYSE:WMT)?

Walmart Is A Quality Stock At Any Price

If you are looking for a value stock Walmart (NYSE:WMT) may not be it but that doesn’t mean it isn’t a buy. Trading at 28X this year’s earnings and 27X the next the stock is more costly than Target (NYSE:TGT) by several handles and nearly double the price of BJ’s Wholesale Club (NYSE:BJ). What Walmart has that they don’t is a healthy membership business (vs Target) akin to Costco which is trading closer to 38X its earnings and a dividend (vs BJs). In light of some recent analyst action, the Q3 results, and the outlook for next year I think this stock will set new highs after new high throughout 2021.

"In short, the material sequential comp deceleration embedded within 3Q expectations (for the pandemically supported retailers) looks too conservative, so we expect all of our covered companies reporting over the next three weeks to beat published estimates on the top and bottom line," Peter Benedict and the team at Baird wrote before the Q3 release. "Clearly, upside to results and texture of the print will keep the bulls in charge of WMT given investor’s focus on comp momentum … and the long-term bull case of expanding margins/faster EPS growth,” said JPMorgan analyst Matthew Boss afterward.

Walmart Down On Amazon, Not Its Results

The results at Walmart were good, much better than expected and that is with the impact of forex headwinds, reduced tobacco sales, and COVID-19. Forex headwinds impacted growth in the International segment by 370 basis points. Growth there would have topped 5.0% otherwise. Reduced tobacco sales cost Sam’s Club 420 basis points of revenue but that segment still saw a double-digit increase in top-line results. As for COVID-19, the pandemic is juicing sales as demand continues to be strong across all segments and channels but cost the company $600 million or 0.4% of sales.

That said, Walmart’s revenue came in at $134.71 billion and up 5.2% from last year. The topline results beat the consensus by $3.18 billion or 240 basis points. Revenue gains were driven by a 6.4% increase in U.S. comps that exceeded the consensus by 250 basis points. Sales at Sam’s Club jumped 11.1% to exceed expectations by 270 basis points and everything boosted by eCommerce. Sales through eCommerce channels grew 79% across all channels in the U.S. with a 41% increase at Sam’s Club and these gains are expected to stick. eCommerce sales beat the consensus by 570 basis points.

Moving down the report, company margins improved 50 basis points at the gross-level and were slightly offset by an 18 point decline in net margin. The net margin decline is attributed to incremental COVID-19 related costs that should dissipate over the coming quarters. On the bottom-line, both GAAP and Adjusted EPS beat the consensus putting the company on track to beat FY estimates next quarter.

The reason shares are falling is because of Amazon. The meager -1.0% drop is in response to Amazon’s launch of U.S. pharmacy operations, a launch that has been well-telegraphed. Walmart may lose some market share to Amazon but that has been priced into the market for some time.

Walmart Is Moving Up On Results

Shares of Walmart took a small hit in the wake of the Q3 release but that is more to do with Amazon than anything else. In light of the previous session’s new all-time high, the slight pullback in prices is welcome. On a technical basis, the price is still very bullish and trading at/above the previous all-time high. Price action may trend sideways or pull back a little more in the near term but that will likely lead to more upside.

The weekly charts are very bullish showing rising indicators with plenty of room for upside movement. The analysts are very bullish on the stock as well but there is one problem that may turn into a catalyst. The consensus price target is very near the current price action and may keep prices from moving higher if the analysts don’t up their estimates and targets. If the analysts start upgrading and raising targets new all-time highs are all but assured. The very-recently set Wall Street high-price-target is $170 or about 15% upside plus a very-safe dividend.