Walmart (WMT) stands out as a global retail giant, a brand that has not only shaped the retail landscape but has also left an indelible mark on the world economy. Its growth journey is nothing short of remarkable, marked by innovation, resilience, ups and downs, and an unwavering commitment to its core values.
During these times of rising inflation, when consumer spending is limited, this consumer-dependent company reported a stellar quarter. It demonstrates the stronghold and customer loyalty the company has attained over the years.
Walmart’s stock is up a mere 7.9% year-to-date, compared to the S&P 500 Index’s ($SPX) gain of 24.5%. Nonetheless, Wall Street sees more than 18% upside for WMT by the end of 2024. Let’s find out why.
A Legacy Company With Strong Fundamentals
The Walmart story began in 1962, when the first store opened in Arkansas. Walmart's vision was to provide a different type of retail experience, one that helped customers find products with low prices and good service. The company's goal was to create a one-stop shop for everything a consumer might need, from groceries to household goods, all under one roof, and it succeeded in doing that.
Furthermore, Walmart didn’t just grow; it revolutionized retail. The company established the concept of using technology for inventory management, employing barcode scanning and data analytics long before these became industry standards. This approach streamlined operations, minimized costs, and allowed Walmart to offer competitive prices.
Furthermore, Walmart's expansion was not limited to the U.S. The company has established an impressive global presence, operating around 10,500 stores and clubs in 19 countries. Its "Everyday Low Price" strategy and this global mark are its competitive advantages, which contributed to another stellar quarter.
In the third quarter of fiscal 2024, total revenue increased 5.2% year on year to $161 billion, exceeding the consensus estimate by $895.65 million. Walmart’s U.S. comparable store sales increased 4.9% year-over-year, while International sales jumped an impressive 11% to $28 billion. E-commerce also showed growth of 24% in the quarter. Adjusted earnings per share (EPS) increased 2% to $1.53, surpassing the estimate by $0.01 per share.
Walmart is a Dividend King
While Walmart is not a hyper-growth name, along the lines of tech stocks with artificial intelligence (AI) potential, it is a dividend stock that provides investors with a steady stream of passive income. It has earned the title of Dividend King by increasing dividends consistently for the past 50 years. This also reflects the company's business stability, which should appeal to risk-averse investors concerned about stock market volatility.
Walmart has a dividend yield of 1.49%, which is lower than the sector average of 2.2%. While higher dividend yields are appealing to investors, keep in mind that consistency in dividend payments reflects a company's commitment to returning value to shareholders, which Walmart has proven. Furthermore, its modest dividend payout ratio of 34.6% suggests that there is a lot more room for dividend growth.
Walmart had $12.2 billion in cash and cash equivalents at the end of the quarter, with a total debt of $55.4 billion. While the debt figure appears concerning, Walmart's interest coverage ratio (operating income/interest expense) of 9 indicates that the company is easily paying off interest on the outstanding debt, a sign of healthy finances.
Furthermore, the company ended the quarter with a free cash flow of $4.3 billion, which should help it pay dividends, repay debt, and pursue future growth strategies.
Growth Strategies
Walmart has partnered with Symbotic (SYM), an AI-powered robotics company that provides supply chain services. Symbotic systems will be installed in 42 Walmart distribution centers across the U.S., according to the agreement. While the automation process may take more than eight years to finish, it will help Walmart reduce expenses and increase margins in the coming years. Furthermore, Walmart owns 11% of Symbotic; as Symbotic advances with AI, so will Walmart's investment in it.
Management stated over the earnings call, “Over the next several years, we expect margins to move higher as we modernize our supply chain and scale higher-margin growth initiatives.”
With a successful holiday season and the benefits of Flipkart Big Billion Days driving international sales, Walmart now expects fiscal 2024 sales to increase by 5% to 5.5% over fiscal 2023. EPS for the entire fiscal year could range from $6.40 to $6.48. By comparison, analysts predict $6.47 EPS on $641.8 billion in revenue for the year.
Furthermore, revenue and earnings are estimated to grow by 3.3% and 9.7%, respectively, in fiscal 2025.
What Does Wall Street Say About Walmart?
According to MarketWatch, TD Cowen analyst Oliver Chen is highly optimistic about Walmart’s future. He stated, “We view [Walmart] as a retail-tech leader & strategic investments in Walmart+, e-commerce marketplace & digital advertising will drive margins higher.” He further added, “We feel these initiatives alongside artificial intelligence applied across all stakeholders will drive a new retail nexus.” Chen has a “buy” rating and $188 price target for Walmart.
Overall, Wall Street rates Walmart as a “strong buy.” Out of the 30 analysts covering the stock, 21 rate it a “strong buy,” four rate it a “moderate buy,” and five rate it a “hold.” The average analyst target price for Walmart stock is $180.02, which implies an upside potential of 16% from current levels.
The Key Takeaway
Walmart quickly grew to become the world's largest retailer by relentlessly focusing on its core principles of efficiency, cost reduction, and customer satisfaction. The retailer's massive size and economies of scale have given it unrivaled purchasing power, allowing it to negotiate favorable deals with suppliers and pass savings on to customers.
Furthermore, its investments in online retailing and technological advancements have enabled it to compete more effectively in the rapidly changing digital marketplace. As a result, I believe that - regardless of competition - Walmart will continue to dominate the retail space, increasing revenue and profits while fulfilling its commitment as the Dividend King. All things considered, I'm not surprised that Wall Street adores this Dividend King.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
