Stock Analysis & Ideas

Asda la Vista: Walmart Sells UK Supermarket Chain, Strategy Remains Intact, Says Analyst

In contrast to the manic macro environment of 2020, Walmart’s (WMT) display could be characterized as strong and steady. The retail giant has made a well-timed pivot toward the digital realm, increasingly throwing more weight behind its e-commerce business. The result has been a pandemic resilient performance, with shares up by 21% year-to-date.

However, it looks like Walmart’s bottom line is about to take a hit in the short term. Walmart has decided to sale its ownership of the Asda Group to TDR Capital and the Issa brothers for £6.8 billion (roughly $8.8 billion), just a smidgen over the £6.7 billion it paid for the UK supermarket chain back in 1999.

Pending regulatory approval, the transaction will close by 1H21. Walmart will keep a seat on the board of directors and retain an equity investment in the company.

Walmart, however, won’t walk away damage free. The company expects to take a $2.5 billion after-tax write-down in fiscal 2021 and dilution to the tune of $0.25 per share.

Walmart has been down various avenues trying to offload Asda recently, so the deal is no shocker to Raymond James analyst Bobby Griffin. Despite the expected short-term hit to the bottom line, the 5-star analyst notes the move is one that algins with Walmart’s overall game plan.

“Today’s announcement is not entirely that surprising, as over the last few years Walmart’s senior management has been taking steps to reorganize its international businesses,” Griffin said. “In 2018, Walmart also sold a majority stake in its Brazil business. It is also well-known that the U.K. grocery market is highly competitive, especially with the recent growth of hard discounters Aldi and Lidl. Accordingly, we believe today’s announcement is in-line with senior management’s ongoing strategy to reallocate capital and investment resources in certain international businesses towards its key growth international markets (India, China and Mexico/ Central America – Walmex).”

Overall, Griffin maintains an Outperform (i.e. Buy) on WMT shares yet refrains from adding a price target. (To watch Griffin’s track record, click here)

Walmart retains the majority of the Street’s support. The analyst consensus rates the stock a Strong Buy, based on 22 Buys and 7 Holds. Given the $149.13 average price target, the Street forecasts 5% of upside over the following months. (See Walmart stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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