Walmart (WMT - Free Report) saw its stock price pop Wednesday morning after Morgan Stanley (MS - Free Report) analysts upgraded the retail giant’s stock amid a potential global economic slowdown. So, let’s take a look at the reasons for Morgan Stanley’s enthusiasm and dive into why Walmart might be a solid stock to own at the moment.
Morgan Stanley analyst Simeon Gutman upgraded WMT shares from “equal weight” to “overweight” in a note to clients Wednesday. The analyst also raised his 12-month Walmart price target to $110 a share up from $107, which marked a 12% upside from WMT’s closing price Tuesday.
Gutman understands that some of Walmart’s top and bottom-line projections don’t necessarily appear that strong. But he is more bullish on WMT than much of the rest of retail based on its cost control commitments, among other factors. “At face value, Walmart doesn't fit neatly into the framework we are recommending in 2019 as we model EPS declining in the low single digit range and its about 20x P/E multiple is above historical levels," Gutman wrote.
“However this is misleading, as both the EPS decline and inflated multiple are attributable to Walmart's acquisition of Flipkart in 2018.”
The Morgan Stanley analyst said that Walmart deserves its premium compared to some of its peers and thinks Walmart U.S., which is the main driver of WMT stock, will be one of the few retailers to grow earnings in 2019.
Walmart stock hovered up around 0.90% through mid-day trading Wednesday at $98.41 a share. This marked a 10.5% downturn compared to its 52-week high of $109.98. The chart below also shows us that WMT stock has outperformed the S&P 500 and crushed rival Target (TGT - Free Report) over the last three years.
Walmart became Flipkart Group’s largest shareholder last summer. The retailer now owns roughly 77% of Flipkart, while Tencent (TCEHY - Free Report) and Microsoft (MSFT - Free Report) are also shareholders. The firm’s investment in one of India’s biggest e-commerce sites could prove to be a boost down the road as the country’s economic growth might surpass China.
Investors should also remember that Walmart has pushed deeper into grocery delivery throughout the U.S., along with the likes of Kroger (KR - Free Report) , Costco (COST - Free Report) , and others in an effort to remain highly competitive as more consumers come to expect the service in the Amazon (AMZN - Free Report) age. Plus, as the Morgan Stanley analyst mentioned, WMT is trading at 20.7X forward 12-month Zacks Consensus EPS at the moment, which we can see hardly marks for a stretched valuation picture over the long haul.
Moving on, our current Zacks Consensus Estimate calls for Walmart’s fourth-quarter revenues to pop by 2.23% to reach $139.30 billion. WMT’s revenues climbed 1.4% last quarter. Maybe more importantly, Walmart’s Q4 U.S. comparable store sales are projected to climb 3.45%, based on our NFM estimate. This would top Q3’s 3.4% comps expansion and the year-ago period’s 2.6% climb.
Meanwhile, the company’s full-year revenues are expected to jump nearly 2.8% to hit $514.18 billion. Last year, WMT’s top-line popped 3% to reach $500.3 billion.
At the other end of the income statement, Walmart’s adjusted quarterly earnings are projected to come in flat at $1.33 per share. Investors might be pleased to note that the retailer’s full-year EPS figure is expected to expand by 9.3%.
Walmart is a Zacks Rank #3 (Hold) at the moment that has seen some positive earnings estimate revisions over the last 30 days for Q4. WMT also sports “B” grades for both Value and Growth and an “A” for Momentum in our Style Scores system.
We should also remember that Walmart is a dividend payer that has raised its quarterly cash dividend every year since first declaring one in March 1974. Walmart is currently projected to release its Q4 and full-year financial results on February 19.
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