Walmart (WMT) is an American multinational retailer operating hypermarkets, discount stores, and grocery outlets.
I’m bullish on the stock. (See Top Smart Score Stocks on TipRanks)
Earnings Beat
Walmart posted revenue worth $140.5 billion (up 4.3% year-over-year) in Q-3. A highlight of the quarter was once again U.S. e-commerce growth, which grew by 8% during the quarter.
The company’s organic growth is consistent and management expects comparable-store sales to rise by a further 5% in Q4 to consolidate full-year comparable sales growth of 6%.
Although Walmart missed its GAAP EPS target by $0.29 in Q3 it upgraded its full-year EPS consensus to $6.40 from its previous estimate of $6.20-$6.35.
Strategic Advantage Fueled by Economic Variables
In an interview earlier this week, Walmart CEO Doug McMillon referenced the group’s founder, Sam Walton, and said: “We save people money and help them live a better life. Those are the words that came out of [Walmart founder] Sam Walton’s mouth. He loved to fight inflation. So do we.”
Walmart’s low-cost strategy could see it benefit from price elasticity where consumers opt for cheaper goods during times where their spending power is being eroded.
Year-over-year inflation currently stands at 5.4%, and although it’s expected to level off to 2.3% in 2022, inflation is a lagging indicator of consumer spending, meaning that price elasticity during 2022 will be a consequence of 2021’s price inflation.
Key Developments Moving Forward
If Walmart wants to ascertain its low-cost market positioning, it has to continue building on the digital aspects of its business so that it manages its supply chain efficiently.
Tangible success has been achieved with existing digital exploits, with the company’s omnichannel strategy providing noticeable success, reaching 87% in e-commerce sales growth during the past two years.
Walmart has also entered into significant partnership agreements to help develop the firm’s “less than 2-hour delivery option,” combining interests with the likes of DoorDash (DASH), PointPickup, Rowdie, and Postmates.
It remains challenging to assess Walmart’s supply chain efficiency due to global supply chain issues; investors, however, need to pay close attention to inventory management moving forward. It will hold the key to running a low-cost business model during a period of high input cost.
Valuation
There’s no use in comparing the stock’s multiples to its normalized five-year averages as retail stocks are approaching the top of their economic cycle.
Comparing the stock to its peer group shows that it’s undervalued; Walmart stock is trading at a 52.7% discount on price-to-sales and a 14.5% discount on EV/EBITDA.
Furthermore, the company’s operating cash flows have grown 33.6% faster than its competitors during the past year.
Wall Street’s Opinion
Turning to Wall Street, the consensus is that the stock is a Strong Buy. Out of 20 analyst ratings 16 have been Buys, and four have been Holds. The average Walmart price target is $172.15, which could present investors with 19.9% in upside.
Concluding Thoughts
Walmart is set to benefit from price elasticity. The company released a stellar Q3 earnings report conveying the advancements made in its digitalization exploits. The stock is undervalued relative to its peer sector, and I believe it’s significantly undervalued at this stage.
Disclosure: At the time of publication, Steve Gray Booyens had a long position in WMT.
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