Analysts at the Bank of American (BoA) have reiterated their ‘Buy’ rating and US$190 price target for Walmart Inc (NYSE:WMT) on their strong near- and long-term outlook for the retailer.
Walmart shares traded hands at US$156.56 early on Friday afternoon, down $6.4% week-over-week as investors retreated from the stock disappointed by its weaker-than-expected updated full-year guidance.
The analysts see Walmart continuing to make share gains in grocery and general merchandise.
“We expect grocery share gains and trade-down to continue supporting Walmart’s store and online transactions as consumers continue to manage grocery inflation, up 25% versus 2019, the reduction in Supplemental Nutrition Assistance Program (SNAP) benefits, and the return of student loan repayments,” they wrote.
“While we see continued softness in discretionary, we see support for Walmart general merchandise, share gains to continue from initiatives including store remodels, online stock keeping unit (SKU) expansion including through third parties, and strong pickup/delivery execution, which is a key driver of share gains with higher incomes and has become the most productive channel for acquiring Walmart members.”
They also see increasing contributions from higher-margin profit streams such as digital advertising and third-party marketplace and fulfilment services offsetting ongoing mix shift headwinds.
For fiscal 2024, the BoA analysts maintained their adjusted earnings per share estimate of $6.45, in line with Walmart’s raised guidance of $6.40 to $6.48.
For 4Q, they project earnings per share of $1.61 and 2% growth in comparable store sales in the United States.
“This reflects our 4Q outlook for moderating sales growth as grocery inflation continues to wane with potential for dry grocery to turn deflationary in the coming weeks or months, headwinds from store closures and recovery costs associated with the recent hurricane near Acapulco, Mexico, and a lower than initially expected interest expense,” they wrote.
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