Walmart (WMT) is a retail titan, the world’s largest private-sector employer. And for a long time the Dow Jones stock was a huge growth winner for investors. Walmart continues to lock horns with online behemoth Amazon.com (AMZN) with the launch of Walmart+, its version of Amazon Prime. Walmart stock has formed a base, but is it a good buy right now? Read on.
Walmart has mammoth revenue. It came in at $524 billion in fiscal 2020. However its size is also a weakness, as sales growth was a tepid 2%. Achieving substantial growth is difficult for such a large retail company.
Despite being founded in 1969, the discount giant isn’t resting on its laurels. E-commerce sales have been surging with strong performance at Walmart.com, including its online groceries. However, the vast majority of its revenue still comes from its brick-and-mortar stores. Meanwhile, Amazon has a foothold in physical retail through its Whole Foods chain.
Walmart+ Ready For Amazon Prime Time
The Walmart vs. Amazon battle for retail supremacy is raging along multiple fronts, and is blurring the lines between online and offline. Walmart, Target (TGT), Costco (COST) and a few other retail giants are adopting a hybrid model to take on Amazon, leveraging their brick-and-mortar stores in conjunction with digital shopping.
Walmart stock jumped on Sept. 1 after the retail giant said customers would be able to sign up for its Walmart+ membership program on Sept. 15.
“Walmart’s Walmart+ program will help retain new customers that it has gained as a result of Covid-19, as well as deepen relationships with long-standing customers, and as such is a positive for the company,” Moody’s analyst Charlie O’Shea told IBD.
Walmart+ costs $98 a year, or $12.95 a month, with a 15-day free trial. The program’s benefits can be used, in one way or another, at more than 4,700 stores. The service will offer free delivery on items, at in-store prices, with 2,700 stores capable of offering same-day delivery.
By comparison, Amazon Prime costs $12.99 a month, but offers perks such as Amazon Prime Video. If members want to be charged yearly, the cost is $119.
The debut of Walmart+ marks the chain’s latest effort to become more of an e-commerce company, as the growth of online shopping remolds customers’ habits — a trend that could be accelerated by the pandemic as more people stay home.
Walmart recently teamed up with e-commerce software giant Shopify (SHOP) to help third party sellers on its marketplace, another venue to take on Amazon.
Clock Stops On This TikTok Move
Walmart had been eyeing a potential deal to take an ownership stake in TikTok. It came after President Trump signed an executive order in August that ordered ByteDance to sell its TikTok U.S. operations by Nov. 12. The potential deal is currently up in the air after a U.S. district court federal judge blocked the Commerce Department’s order to effectively bar the Chinese-owned social media app from operating in the US.
The Commerce Department said it would comply with the injunction, but it also intends to “vigorously defend” the executive order from legal challenges.
Walmart could join Oracle (ORCL) as an investor in a potential TikTok deal. The discount giant had teamed up with Microsoft (MSFT) in a bid to buy the American portion of Chinese video-sharing app TikTok, aiming to cash in on the growing “social commerce” market. But TikTok parent ByteDance chose Oracle as a technical partner.
Walmart saw a boom in sales, including online, during the coronavirus pandemic, as its stores remained open and people embraced e-commerce and curbside pickup. However, labor costs also have risen.
Walmart Stock Analysis
Walmart stock broke out of a flat base, MarketSmith analysis shows. However, it is now trading mildly below its buy point of 151.43, and actually fell into loss-taking zone before recovering slightly.
Walmart is currently trying to retake its 50-day moving average. Getting back above this key benchmark will be an important near-term goal for Walmart stock.
The relative strength line for Walmart stock has been making declining since late-November. This means it has been underperforming the broader S&P 500. While it has been regaining some ground recently, it is too early to say whether it is turning a corner.
More broadly, Walmart’s RS line has been moving sideways for several years. That follows a long slide from a 2009 peak, signaling how Walmart stock has lagged the S&P 500 throughout the long bull market. In other words, if you had bought the SPDR S&P 500 ETF (SPY) instead of Walmart in 2009, you’d have a bigger gain.
Walmart Stock Fundamentals
The retailer’s fundamentals improved a lot in 2020. Nevertheless faltering stock performance have seen the IBD Composite Rating for Walmart stock slip to 60 out of a best-possible 99. This puts it in the top 40% of stocks tracked.
The Stock Checkup Tool shows EPS growth has averaged out at 14% over the past three quarters. In the most recent quarter the growth rate slowed, halting a period of accelerating earnings.
Nevertheless Walmart easily beat analyst views in the most recent quarter, its fiscal third quarter. Walmart earnings rose 17% to $1.34 a share, with revenue up 5.2% to $134.71 billion. Sales growth has been in the low single digits for the past several years, except for a 1% decline in fiscal 2016.
Walmart U.S. comps climbed 6.4%, with Sam’s Club same-store sales up 11.1% excluding fuel.
U.S. Walmart e-commerce sales skyrocketed 79% and Sam’s Club online sales shot up 41%. During Q3, its Walmart+ membership delivery service went live, rivaling Amazon Prime, likely giving online sales a further bump.
Earnings ultimately drive stock prices. CAN SLIM investors should focus on companies with earnings and sales growth of 25% or more.
Check out Leaderboard, IBD’s premium service with annotated charts and timely buy and sell alerts.
Analyst Backs Walmart Stock
Jefferies analyst Stephanie Wissink is rating Walmart stock as a buy with a 177 target. She was impressed with improving comparable store sales performance following its most recent earnings report.
“Improvement in comp as Q3 progressed is encouraging, especially as unemployment & stimulus benefits rolled off and only a small bit of holiday was pulled forward,” she said in a research note. “We remain confident that WMT is well positioned to benefit from deepening loyalty, omni-channel adoption, and brand mix gains in general merchandize.”
The analyst was also impressed with the firm’s new partnership with FedEx (FDX), which will allow e-commerce customers to print their own return label and schedule a date for pickup by the delivery giant.
“We view this new offering as another step towards building out WMT‘s omnichannel value prop and competitive response to companies like AMZN, which already has order return options at some KSS, WFM, and UPS stores,” she said.
Walmart Stock Benefits From E-Commerce Focus
Walmart is doing much better handling the new retail landscape than department stores such as Macy’s (M). In fact, Walmart’s U.S. e-commerce growth has been much faster than Amazon’s retail sales growth. It is growing from a much lower base however.
Dow Jones stock Walmart has also been trying to snatch share in rapidly growing economies such as India and China. An example of this is how Walmart outbid Amazon for Flipkart, sealing a $16 billion deal for a controlling stake in the Indian e-commerce firm in 2018. But more-stringent Indian regulations there have been causing headaches for both Walmart and Amazon.
Walmart is reorganizing its footprint in India so it can compete better against Amazon. It is selling its Indian wholesale business to Flipkart. This should let Walmart get around a key obstacle in India, which bars foreign investors from controlling and marketing their own inventory on their e-commerce platforms.
Financial details of the deal have not been disclosed. But the accord will see Walmart India employees join Flipkart, which will also launch a digital marketplace called Flipkart Wholesale in August.
Walmart To Flip Flipkart?
Walmart is seeking to hold a U.S. IPO of Flipkart stock, which could happen as early as 2021. Reuters cites sources who say the Flipkart IPO could value the e-commerce giant at $45 billion to $50 billion, which would more than double Walmart’s investment.
It had been speculated the offering would take place in late 2021 or early 2022, Covid-related acceleration of e-commerce is said to have pulled the process forward. Walmart is exploring selling 25% of its roughly 81% stake, according to Mint.
The world’s second most populous country is key to the Dow Jones stock. Walmart is investing in India as a global manufacturing hub by tripling its exports to approx. $10 billion per year by 2027.
Is Walmart Stock A Buy?
Walmart stock has not been a long-term stock market leader for many years.
In addition, Walmart earnings growth fails to meet the 25% benchmark looked for by CAN SLIM connoisseurs. Investors should focus on companies with superior earnings and strong stock performance, such as those on the prestigious IBD 50 list.
Analysts give Walmart high marks for the company’s efforts and execution competing with Amazon, but it remains to be seen whether this will have a significant impact on earnings and sales.
There is a chance investors could see decent returns from the stock, as it is working to capture e-commerce share and as discounters generally are in favor among consumers. However its status as a mature business behemoth means shares will likely lag the broader market in the long run. Investors would have been better off over the past decade eschewing Walmart stock in favor of an index fund or ETF like SPY.
Bottom line: Walmart stock is not a good buy right now. It is currently below a buy zone, and has been struggling to make headway. In addition, Walmart stock is unlikely to be a huge winner due to its fundamentals, which are not outstanding.
YOU MIGHT ALSO LIKE: