Where Is Walmart Stock Headed Post Stock Split?

-8.98%
Downside
59.53
Market
54.18
Trefis
WMT: Walmart logo
WMT
Walmart

[Note: Walmart’s Fiscal Year 2024 ended on January 31, 2o24]

Walmart stock (NYSE: WMT), the world’s largest retailer by revenue, announced a 3-to-1 stock split. That means the number of shares one owns will go up by 3x, i.e, 3 shares now owned for every 1 share previously owned. This is typically done to attract more retail investors into the company since the split of the company’s outstanding shares leads to the stock trading at a much lower price afterward. (Making the stock appear more “affordable.”) As such, stock splits don’t add any value to the company, but are often seen as management signaling optimism for the future.  Since going public, Walmart has done a total of 10 stock splits, including the recent one – where the last stock split was seen 25 years ago. WMT stock closed at almost $176 on Friday, February 23, and currently trades near $60 post-stock split (as of Feb 27). We have revised Walmart’s Valuation to $54 per share (from a previous (pre-split) $163), based on a $2.32 expected EPS and a 23.4x P/E multiple for the fiscal year 2025 – almost 9% lower than the current market price. We also forecast Walmart’s Revenues to be $673.7 billion for the fiscal year 2025, up 4% y-o-y.

WMT stock has witnessed an increase of 23% from levels of $48 in early January 2021 to around $60 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. However, the change in WMT stock has been far from consistent. Returns for the stock were 0% in 2021, -2% in 2022, and 11% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that WMT underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector including PG, COST, and KO, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could WMT face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

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It should be noted that Walmart owes $46.9 billion in debt and has $9.9 billion in cash position currently. With financing rates significantly higher than in previous years, this significant debt not only increases long-term risk for the retailer but also interest costs. In addition, the company saw slowing U.S. comparable sales growth throughout FY’24. The company saw 7.4% U.S. comp sales growth in Q1’24 followed by 6.4% in Q2’24, 4.9% in Q3’24, and 4.0% in Q4’24.

In Q4, Walmart’s transactions were 4.3% higher during the quarter and the average ticket was down 0.3%. The company’s revenue rose 5.7% year-over-year (y-o-y) to $174.4 billion. E-commerce sales rose 23% during the quarter and contributed 240 basis points to comparable sales in the fourth quarter. In addition, WMT’s global advertising business grew approximately 33% during the quarter, including 22% for Walmart Connect in the U.S.  Notably, there was a reduction in deflationary trends (compared to Q3 2024) as food and consumable prices fell less than anticipated. The retailer’s adjusted EPS came in at $1.80, up 5% y-o-y, due to growth in operating income. In fiscal 2025, Walmart sees 2025 revenue growth of 3% to 4%. The company also expects full-year EPS of $2.23 to $2.37 on a post-split basis.

Walmart also confirmed that it is acquiring Vizio, a television maker, for $11.50 per share in cash, or around $2.3 billion in fully diluted equity value. Walmart aims to sell advertising through this deal. The acquisition of Vizio and its Smart TV operating system (SmartCast) is expected to enable Walmart to create new opportunities to help advertisers connect with customers. WMT can offer ads through SmartCast which has more than 18 million active accounts.

It is helpful to see how its peers stack up. WMT Peers shows how Walmart’s stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

Returns Feb 2024
MTD [1]
Since start
of 2023 [1]
2017-24
Total [2]
 WMT Return 8% 26% 166%
 S&P 500 Return 5% 33% 127%
 Trefis Reinforced Value Portfolio 3% 42% 627%

[1] Returns as of 2/27/2024
[2] Cumulative total returns since the end of 2016

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