Shares of Walmart (WMT) climbed in morning trading after the stock was upgraded by an analyst who predicted the company will be one of the few retailers to grow earnings this year.
ANALYST ACTION: Morgan Stanley analyst Simeon Gutman upgraded Walmart to Overweight from Equal Weight and raised his price target on the shares to $110 from $107. In a research note to investors, Gutman said Walmart remains one of the few stocks among U.S. retailers that he thinks can generate sales growth without sacrificing margins. Given its "unprecedented commitment to cost control," along with moderating e-commerce dilution, Gutman said he expects Walmart U.S. EBIT to inflect in 2019. "We believe Walmart will be one of few retailers to grow earnings in 2019" in the Amazon (AMZN) era, he added. Gutman sees Walmart EPS at $4.80 in 2019 and at $4.74 in 2020. Walmart currently trades at about 20.5x NTM P/E, and the analyst said he believes this premium looks "reasonable," as "Walmart deserves to be benchmarked against higher-multiple consumer packaged goods stocks given its improving sales/earnings trajectory and consistency; and its defensive nature limits downside risk."
Additionally, Gutman thinks Walmart is gaining share in key categories and notes that the firm's recent survey work shows that Walmart ranks highly across apparel, grocery, home furnishings and e-commerce, all of which boost Gutman's confidence that 2.5% comps are "achievable" in 2019. He also believes low single digit comp growth is "likely sustainable" in the medium-term.
WHAT'S NOTABLE: In late December, Amazon, which has been gaining share from other retailers, said that it had a "record-breaking" holiday season with more items ordered worldwide than ever before. Amazon customers shopped at record levels from a wide selection of products across every department, it said. "This season was our best yet, and we look forward to continuing to bring our customers what they want, in ways most convenient for them in 2019. We are thrilled that in the U.S. alone, more than one billion items shipped for free this holiday with Prime," said Jeff Wilke, CEO Worldwide Consumer at Amazon, said at the time. Amazon has also been making roads to disrupt physical retailers like Walmart with Amazon Go, its own foray into the brick-and-mortar space.
Walmart had looked to take on Amazon's Prime program with ShippingPass, but replaced the service with an offer of free shipping for orders exceeding $35 to all customers. Walmart's Levittown, New York store is a testing ground for the company's Project Kepler team, The Information has said. The team is developing high-tech store concepts for the retailer to test cashierless checkout, among other applications, and Walmart is using the cameras to test the accuracy of its systems for automatically identifying the items shoppers remove from shelves, a person who confirmed that Levittown is part of Walmart's Kepler team efforts. Grocers are enlisting robots and artificial intelligence to boost efficiency as competition for consumer spending rises and venture-capital firms have invested over $1.2B in grocery technology this year, double the total for 2017, the Wall Street Journal previously said. Innovation is building an automated system for packing online grocery orders at a Walmart store in New Hampshire, the publication said. In October, Walmart announced plans for its first "high-tech" grocery distribution center.
PRICE ACTION: In morning trading, shares of Walmart are up 1.3% to $98.73.
Walmart
+1.58 (+1.62%)
Amazon.com
+7.85 (+0.48%)