Since 1962, when founder Sam Walton opened the first Walmart in Rogers, Arkansas, Walmart Inc (NYSE: WMT) has billed itself as a family business, and it has walked the walk, as 75 percent of all…
Since 1962, when founder Sam Walton opened the first Walmart in Rogers, Arkansas, Walmart Inc (NYSE: WMT) has billed itself as a family business, and it has walked the walk, as 75 percent of all store managers (who average $170,000 a year in salary) started out as hourly employees.
After building its reputation as a store where low-income and middle-income consumers can go to shop without breaking the family budget, Walmart is starting to break out into new areas like banking and consumer health care — intriguing ideas given the foot traffic at the average Walmart on any given Saturday or Sunday. Walmart commanded 11 percent of all retail foot traffic on Black Friday last year, the most of any retailer.
Is Walmart stock worth the price of admission and can it bring old-fashioned value to investors? Let’s grab a cart and hit the aisles and see what Walmart has on the shelves for investors.
WMT stock at a glance. After hovering in the mid-to-high $80s for much of 2018, Walmart stock has been on an upward spiral, reaching the mid-$90s with a one-year consensus estimate of $104 per share by analysts.
Share price growth has been largely attributed to recent quarterly financial performance across the board. Second-quarter sales figures for Walmart were up 4.5 percent, while the company’s e-commerce sales rate grew by 40 percent.
“Also, Sam’s Club comp sales were up 6.5 percent, excluding fuel and a 150 basis point negative impact from tobacco,” Walmart CEO Doug McMillon said after second-quarter numbers were released. “International had a good quarter with positive comp sales in our four largest markets — Mexico, U.K., Canada, and China, including a more than 5 percent comp increase at Walmex.”
Walmart has invested heavy resources to take advantage of a massive consumer base in China, where shoppers are looking for affordable consumer goods options in the burgeoning Chinese economy.
“In China, we saw solid comp sales growth of 1.5 percent as the team continues to do a nice job of strengthening our offerings in key categories like fresh and private brands,” McMillan says. “We’re also deepening our strategic relationships with Tencent by expanding the WeChat app features like Scan & Go to improve the customer experience in stores.”
Pros to buying Walmart stock. For those reasons and more, Walmart’s steady share price growth rate is starting to attract converts who see the stock as a good defensive retail hedge for the short-term as skittishness over the U.S. economy grows.
“For the past 12 months, Walmart stock has been increasing, and it shows no signs of slowing down any time soon, in the near future at least,” says Stacy Caprio, an investment blogger at FiscalNerd.com. “I would recommend grabbing some Walmart stock right now and planning to hold it for at least a year, then make a note on your calendar to check back in and make sure all is well.”
“Going into the holiday season, the outlook is good for WMT,” says Dan Wachtel, a money manager at Harbour Capital Partners in New York. “Sure, they will take on some more liabilities by hiring so many temporary workers, but Walmart believes that it will be able to handle the loss of revenue caused by the temporary workers.”
WMT’s business model clears the path to portfolio profits, Wachtel says.
“Walmart’s are already crowded on a regular day due to the stores having groceries, electronics, sports sections, pet section, clothing and other in-demand consumer items,” he says. “They have pretty much everything you need and since they buy at such large quantities Walmart’s gross margin is pretty high, at almost 25 percent.
“Along with Amazon ( AMZN), Walmart pretty much owns the holiday season,” he adds.
Another reason to kick some tires on Walmart is a potentially huge partnership.
“Walmart is a fantastic business with great upside,” says Alexander Lowry, a professor of finance at Gordon College in Massachusetts. “That’s especially so when you consider that the world’s largest retailer is in talks to buy Humana ( HUM), one of the largest private health insurance companies with more than 14 million policyholders.”
Walmart has a vast pharmacy business, with locations in most of its roughly 4,700 U.S. stores and in many of its Sam’s Club warehouse locations. “Humana is a Medicare-focused insurer that could deepen Walmart’s relationship with a key demographic — seniors — at a time when the retailer is being threatened by Amazon on several fronts,” Lowry notes.
Obviously, any deal would still have to receive approval from both regulators and shareholders. “But if it goes through, Walmart would instantly become one of the largest companies in the industry,” Lowry says.
According to Bernard George, CEO of Nvstr.com, which tracks social media sentiment on publicly-traded companies, the most commonly cited reasons for owning Walmart are its various e-commerce initiatives.
“These include a partnership with Google ( GOOG, GOOGL) announced last year and its new streaming video service which is reportedly set to be priced lower than Netflix ( NFLX) and Amazon Prime Video,” George says. “Users also believe Marc Lore and the Jet.com team can help modernize Walmart’s e-commerce efforts generally.”
Cons to buying Walmart stock. In one word, it’s Amazon that offers the largest obstacle to further WMT share price growth.
“Amazon has taken away a lot of Walmart’s business and is forcing WMT to concentrate on their online business,” Wachtel says. “To compete with Amazon, they will need to cut into their margins even more. I don’t know if I would hold on to WMT long term, but if you buy on dips going into the holiday season I think you’ll be fine.”
A look at the data only underscores the widening gap between Amazon and Walmart, especially in the eyes of global consumers.
“Among our users, Walmart is the 48th most popular stock overall, and it’s 80 percent more popular than its rival Target ( TGT),” George says. “However, it pales in comparison to e-commerce giant Amazon, which is almost 12 times as popular as Walmart.”
Commonly cited risks to avoid Walmart stock include Warren Buffett’s assessment of the serious nature of the competitive threat from Amazon. “Users also believe Amazon’s purchase of Whole Foods will pressure Walmart’s grocery business,” George says.
The bottom line on WMT stock. If you’re into a stock that offers defensive value in an anxious market, while building a huge global brand name across the globe, Walmart stock seems to fit the bill — even while operating, in key areas like e-commerce, in Amazon’s shadow.