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Walmart (WMT) Stock Looks Like a Buy at New Highs Amid Delivery Push

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Shares of Walmart (WMT - Free Report) have surged over 8% in the last month to help extend its solid 2019 gains, which have helped it easily outpace its industry’s 8.9% average. The retail powerhouse posted blowout first quarter financial results and once again proved to Wall Street that its e-commerce and delivery initiatives have paid off.

Walmart also announced last Friday that it will begin to test in-home grocery delivery as it ramps up its efforts to stand out against rivals like Kroger (KR - Free Report) , Target (TGT - Free Report) , and Amazon (AMZN - Free Report) .

InHome Delivery

Walmart of on Friday, June 7 laid out its plans to launch an in-home grocery delivery service if fittingly calls InHome. The company said its employees, who will be dedicated to this service, will enter consumers’ homes via an unspecified “smart entry technology.” Walmart staff will also use a wearable camera so that users can monitor the physical delivery.

The company is set to offer the service to “over 1 million customers” in three test locations in the fall: Kansas City, Missouri; Pittsburgh, Pennsylvania; and Vero Beach, Florida. “The technology powering InHome Delivery combines the power of our store footprint, store associates and world-class fresh supply chain,” CEO of Walmart eCommerce U.S. Marc Lore wrote in a press release. “Now we can serve customers not just in the last mile, but in the last 15 feet. And that’s truly inspiring.”

Clearly, Walmart is still months away from rolling out a relatively small-scale offering of this in-home grocery delivery offering. It is unclear how many people want to have a stranger enter their home. And it is worth noting that Amazon currently offers in-home delivery options. Walmart’s e-commerce competitor bolstered this business through its early 2018 purchase of smart doorbell maker Ring for roughly $1 billion.

 

 

WMT Overview

As we mentioned at the top, Walmart stock has outperformed its industry this year, up over 15% compared to its industry’s 8.9% climb. Shares of WMT jumped another 1.38% during regular trading Monday to reach $107.52 per share, after touching a brand new 52-week high.

Walmart’s impressive first quarter fiscal 2020 results have helped spark WMT’s strength so far this year. Walmart’s U.S. comp sales surged 3.4% last quarter, which marked the firm’s strongest growth in this vital retail category in nine years and the fourth straight period of 3% or higher comps expansion. Meanwhile, the Bentonville, Arkansas-based company’s U.S. e-commerce sales soared 37%, on top Q1 2019’s 40% expansion.

Like many of its peers, including Costco (COST - Free Report) , Walmart has improved its digital commerce business that now features an array of delivery and at-store pick-up options. Aside from its new in-home plans, the company offers free two-day shipping and is on track to offer same-day grocery delivery from 1,600 stores by the end of this year. Walmart also plans to slowly roll out free next-day delivery options on orders that meet certain requirements.

Furthermore, Walmart has bought up smaller e-commerce companies and retail brands in recent years, including Jet.com, ModCloth, and Bonobos. Maybe most importantly, Walmart purchased 77% of one of India’s largest e-commerce sites, Flipkart in August 2018.

Outlook & Earnings Trends

Looking ahead, our Zacks Consensus Estimates call for the firm’s current full-year revenue to pop 2.5% to reach $527.42 billion. On top of that, the company’s fiscal 2021 revenues are projected to climb 3.5% above our current-year estimates to touch $545.89 billion. It is also worth noting that last quarter Walmart executives said they expect U.S. e-commerce sales to climb around 35% in 2020.

At the bottom end of the income statement, Walmart is projected to post adjusted fiscal 2020 earnings of $4.82 per share. This would, however, mark a 1.8% decline from last year, with the projected slip expected to be driven by its Flipkart acquisition and other growth-focused spending plans. Peeking further down the road to 2021, Walmart’s adjusted EPS figure is projected to climb 4.7% higher than our current year estimate.

Plus, we can see that the company’s earnings estimate revision activity has trended heavily upward recently for fiscal 2020 and 2021. The positivity has helped push its full-year consensus estimates up.

 

 

Other Fundamentals  

Walmart’s recent earnings estimate revision trends help the company earn a Zacks Rank #2 (Buy) at the moment. WMT also sports a “B” grade for Momentum in our Style Scores system. The company’s forward price/sales ratio of 0.57 marks a discount compared to the S&P 500’s 3.1 average and comes in below its own five-year high of 0.63.

WMT is trading at 21.6X forward 12-month Zacks Consensus EPS estimates, which represents a premium compared to its industry’s 17.9X average and is far above its own five-year median of 16.6X. This is not a great sign for value investors, as Walmart’s valuation picture does appear a tad bit stretched. But the firm is also a dividend payer that currently pays an annualized dividend of $2.12 per share, for a 2% yield.

Bottom Line

Walmart is one of the largest companies in the world and its business looks poised to expand for years to come, with its new growth plans sure to play a vital role in retaining and attracting new customers. It seems that WMT stock might be one to think about adding for its dividend and consistency, among other reasons we discussed already.

Investors do need to monitor the ongoing U.S.-China trade war situation as Walmart’s price-sensitive customers could get hit with higher costs, along with many others.

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