Tailwinds Drive Walmart Higher, Uptrend Shows No Signs of Slowing

Key Points

• Walmart outperformed in Q3 and raised guidance for the year: the outlook for Q4 is likely cautious. 
• Resilient consumer spending drove strength in all segments and categories, suggesting the holiday quarter will be merry and bright.
• Analysts' trends point to a $100 price tag for Walmart, which may be reached before the end of the year.  

Walmart’s NYSE: WMT Q3 report and guidance for Q4 revealed that the tailwinds driving its business remain strong and steady, driving outperformance and another increase to the outlook. The news sent shares to a new all-time high, firing a strong technical signal that suggests this market will continue to trend higher. It is a strong signal because the stock is already in an uptrend; it is showing support at a high price point with rising volume, and the stochastic and MACD indicators show a healthy market with room to move higher. The post-release move created a gap driven by fundamental qualities, not hype, and new highs are likely.

Walmart Results Point to a Merry Holiday Season for Retailers

Walmart had a strong quarter. The company grew revenue by 5.5% to outpace MarketBeat’s reported consensus by nearly 200 basis points. The strength was driven by growth in all segments and product categories, with Walmart U.S. up 5%, Sams up 7.2% ex-fuel, and International up 8%. eCommerce, ads, volume, and membership revenue underpinned the growth and are expected to remain solid moving forward. eCommerce is up 27%, ads revenue 28%, and volume is up by a low single-digit amount in all segments. Membership revenue at Sam’s Club, an indicator of future sales growth, rose 15%. 

Margin news is also good. The company widened its gross margin incrementally and reduced costs to drive leverage gains on the bottom line. The company’s operating income rose nearly 9%, free cash flow by 45%, and adjusted earnings by 13.7%. The adjusted earnings also outpaced the consensus figure, outpacing the top-line strength by 800 basis points, leaving the balance sheet and capital return in fortress condition. 

The guidance is bullish but may also be cautious because it is the third increase this year. The company increased its revenue, margin, and earnings forecast, expecting all to be above the consensus. Comments about the consumer include resilience, stability, and steady, which all suggest sustained consumer momentum through the end of the year and holiday spending growth above the low-single-digit consensus figure—good news for retailers. 

The critical detail is that this massive company continues to grow and produce free cash flow growth. The free cash flow is important because it helps to sustain the robust capital return outlook. Walmart pays dividends and buys back significant shares, reducing the count by 0.35% so far in fiscal 2025. It is also a dividend compounder, increasing its dividend distribution annually. 

Analysts' Sentiment Strengthens the Tailwinds for WMT Stock Price

The analysts' sentiment trends in 2024 support the price action in Walmart stock. Since early 2024, the stock has garnered numerous price target increases, new coverage, and upgrades, lifting the consensus sentiment to Strong Buy from Moderate Buy and the price target by 45%. These trends are unlikely to end now that Q4 guidance is in. Analysts' sentiment will be leading this stock to even higher highs. The freshest targets put Walmart stock near $100 or more than 10% above the critical support target, and the high end will likely rise over the next two quarters. The risk is that consumer trends will weaken in early 2025, but there is no sign of that in Walmart’s results or the economic data. 

The likely scenario is that consumer health will remain solid through President-elect Donald Trump's inauguration and into the spring. After that, economic tailwinds are expected to form due to falling interest rates and a relaxed tax and regulatory environment that will benefit Walmart and other retailers. In this scenario, Walmart can sustain its growth, the analysts' upgrade cycle, and the uptrend in its stock price through the end of 2025 and perhaps longer.