Is Walmart Stock A Buy At $131?

-10.50%
Downside
150
Market
134
Trefis
WMT: Walmart logo
WMT
Walmart

[Note: Walmart’s Fiscal Year 2023 ends on January 31, 2o23]

After a 9% decline year-to-date (YTD), at the current price of around $131 per share, we believe Walmart stock (NYSE: WMT), the world’s largest retailer by revenue – is fairly priced. WMT stock has declined from around $145 to $131 YTD, outperforming the broader indices, with the S&P falling about 23% over the same period. The retailer’s stock decline can be attributed to investors’ concern about rising costs and their effects on the company’s bottom line. In fact, WMT stock’s price-to-earnings ratio has been nearly halved since the beginning of the year to 26.2x. Despite this decline, it is still trading at a higher premium than rival Target (P/E ratio of 16.5x). We believe that Walmart’s stock just isn’t cheap enough to buy, given the near-term risks it faces. Margin pressures due to inflation and higher inventory levels are expected to continue through the rest of the year. And in the longer term, it looks intent on battling it out with Amazon, recently announcing plans to bolster its Walmart+ subscription with Paramount’s streaming service. This could further strain its bottom line.

In FQ2, Walmart’s revenue rose 8.4% year-over-year (y-o-y) to $152.9 billion. The gains were driven by a 6.5% rise in the retailer’s U.S. comparable-store sales (excluding fuel) and a strong 17.5% jump in its Sam’s Club comps. Its adjusted EPS of $1.77 declined by only 0.6% y-o-y. Also, the retailer saw a 12% increase in its e-commerce net sales growth in the second quarter. This performance is even more impressive considering that the company has surpassed tough fiscal year 2022 comparables that were boosted by social distancing regulations. Although WMT’s sales increased across the board, operating margins were pressured by aggressive inventory reduction measures to 4.5% in Q2’23 from 5.2% in Q2’22. It should be noted that the company’s U.S. inventory levels grew 26% y-o-y in FYQ2. A key part of Sam’s Club’s growth strategy is its loyalty cards, which customers can use to get fuel discounts. In Q2, the fuel effect accounted for nearly half of total comp sales (8% out of 17.5% y-o-y sales growth), but we expect it to shrink with fuel price corrections going forward.

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In fiscal 2023, Walmart guided for a 4.5% net sales growth for the full-year and 5% net growth in the upcoming third quarter of 2023. The retailer still projects comparable U.S. sales growth of just 3% for FY 2023. In light of rising interest rates and the threat of recession, the market at the moment is uncertain, but Walmart (relative to the market) is built to maintain its performance in periods like this. We have revised Walmart’s Valuation to $134 per share, based on a $5.88 expected EPS and a 22.5x P/E multiple for the fiscal year 2023 – in line with the current market price. We also forecast Walmart’s Revenues to be $600.5 billion for the fiscal year 2023, up 4.8% y-o-y.

While WMT stock looks poised for more gains in the future, it is helpful to see how its peers stack up. Check out how Walmart’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

With inflation rising and the Fed raising interest rates, Walmart has fallen 9% this year. Can it drop more? See how low can WMT stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 WMT Return 1% -9% 90%
 S&P 500 Return 3% -23% 64%
 Trefis Multi-Strategy Portfolio 2% -25% 196%

[1] Month-to-date and year-to-date as of 10/18/2022
[2] Cumulative total returns since the end of 2016

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