Walmart’s uptrend is intact; buy it when it dips

Key Points

• Walmart had a solid quarter and gave favorable guidance for 2024. 
• Capital returns will continue to flow and underpin the rally. 
• Analysts are supportive and leading the market higher; however, waiting for the stock split before buying is a good idea. 

Walmart NYSE: WMT is in an uptrend and will likely continue. The Q4 results and guidance for 2024 underpin an expectation for capital returns and improving shareholder value for this retail stock. However, the upcoming 3:1 stock split poses a problem for the market, possibly resulting in a sell-off. The takeaway is that Walmart’s shares are in an uptrend with a potential buying opportunity at hand. 

The stock split is scheduled for February 26th. The move is due to Walmart’s upwardly trending price and its impact on the employee stock purchase program. The company is increasing the share count to reduce the stock price into a range it deems more attractive to employees. At lower levels, there will be more participation and less issuance of partial shares, factors that play into Walmart’s investment appeal. Buy-and-hold investors help reduce volatility; this means for Walmart and its investors, the beta is near 0.6X. 

Walmart has a solid Q4, issues favorable guidance

Walmart had a solid quarter with better-than-expected growth for the network. The company reported $173.39 billion in net revenue for a gain of 5.9% over last year, beating the Marketbeat.com consensus by $3.4 billion. The gains were driven by a 4% comp in the US, a 17.6% increase in International, and a 2% gain for Sam’s Club. eCommerce is a driving force across the system, up 23%, and is expected to remain strong as consumers lean into delivery and same-day pickup. 

Among the critical details is Walmart's industry-leading performance. Q4 sales are running nearly 2X the Q4 sector estimates, suggesting it gained share from other retailers, possibly Target NYSE: TGT. Also, Sam's Club's growth was sluggish and suggests similar results from Costco Wholesale NASDAQ: COST and BJ's Wholesale Club NYSE: BJ. 

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The margin is an area of strength. The company improved its gross margin by 39 basis points and controlled costs to increase the adjusted operating income by 13.2%. The GAAP results are down due to one-offs related to investment gains, but adjusted are up 5.3% YOY to $1.80 or $0.15 better than expected. 

The only iffy news is the guidance. The company provided solid guidance with expected growth but only in alignment with the analysts' consensus. The guidance would not ordinarily be a catalyst for a fresh all-time high. Still, sustaining a healthy balance sheet is sufficient while investing in growth, paying dividends and repurchasing shares. 

Walmart to buy Vizio in a move to expand its ad business

Walmart announced a deal to buy Vizio worth $11.50 per share to VZIO investors. The move is intended to bolster the company’s ad business, the growth engine. The ad business grew by 33% globally about 20% in the US, Vizio’s largest market. Vizio manufactures a line of smart TVs and home entertainment products that utilize its SmartCast platform. While Vizio’s core business will not move the needle much for Walmart, it should be able to leverage the platform for ad delivery. The question is, does Walmart’s move into ads and Vizio mean the consumer markets are tapped out?

Walmart also announced a 9% dividend increase and 18.2 million shares repurchased. The repurchases reduced the diluted share count by 1.1% in 2024 and are expected to continue briskly in 2024. The dividend increase brings the payout to about 1.35% compared to the pre-release price action, and future increases are still likely. The payout ratio is below 35%, so this Dividend King could sustain increases for years with or without earnings growth. 

The technical outlook: Walmart moves up to new high

The Q4 results and guidance for 2024 catalyzed a new high for Walmart. The stock is up about 3% in premarket trading and could rise another 4% to 9%. The consensus target, which is rising, suggests about a 4% upside, while the freshest targets suggest another 5% or more, with fresh revisions expected to come soon. If the analyst revise higher, the 4% to 9% target could be a minimum gain for 2024. 

The chart is bullish, the uptrend is intact, but the market is overbought. The stock split will provide a significant opportunity for profit takers and may cap gains. In this scenario, waiting until after the split for market support to reestablish itself may be the best choice.