Why Walmart stock has rocketed to a 52-week high
Walmart (WMT) best put a near-perfect quarter on the board for investors when it delivers results before the market opens on Aug. 17.
If not, the stock could get crushed under the weight of elevated expectations.
Shares of the world's largest retailer and Dow Jones Industrial Average (^DJI) component are resting at a 52-week high after a 13% year-to-date advance. By comparison, the Dow is only up 9% on the year and rival Target (TGT) has plunged 13% on a stretch of sales and earnings whiffs.
At a forward price-to-earnings multiple of 24.5 times, Walmart stock is trading at a slight premium to its historical average of 21.9 times.
The bull case for Walmart stock
The Walmart bull trade has worked so well primarily because the discounter is seen as a market share winner into 2024.
A new survey of consumers from investment bank Stifel on Monday showed Walmart has the "highest shopping intentions" relative to peers. Moreover, Stifel's work found Walmart is "retaining higher income shoppers earnings more than $100,000 a year."
A total of 71% of households earning more than $100,000 a year have shopped at Walmart in 2023 year to date compared to 50% at Target and 31% at Costco (COST).
"Our consumer survey remains most favorable for shares of Costco and Walmart viewing each as best-positioned to maintain share gains in an increasingly competitive US spending environment," said the survey's lead analyst Mark Astrachan.
"For Walmart shares, we continue to see more upside than downside from current levels," Astrachan added.
Astrachan's $167 price target on Walmart assumes about a 4% upside to the stock from current levels.
Others on the Street are even more bullish on Walmart, and for reasons beyond the company capturing more dollars from cash-strapped households.
"We would also note two sizable opportunities ahead for Walmart, including its fast-growing media business as the company aspires to become the top 10 advertiser in the US, as well as its continued push into healthcare amplified by the recent end of partnership with National Vision," Guggenheim analyst Robert Drbul pointed out in a note Monday.
Drbul said there is "substantial value creation potential" from "alternative revenue streams" such as advertising, fulfillment services, financial services, and healthcare.
The longtime retail analyst also thinks Walmart's stakes in Walmex (Walmart Mexico), Flipkart, PhonePe, JD.com, and Dada Nexus aren't being properly valued by the market.
Drbul estimated these businesses alone are worth a total of $155 billion at present. Walmart has $93 billion invested in the businesses, with its largest stakes in Flipkart (84%) and PhonePe (84%).
Drbul determined Walmart's stock is worth $180, roughly 12% higher than current levels.
"We believe its position of strength is enabling Walmart to accelerate investments in its infrastructure and should allow full optimization of its strategy, in turn accelerating Walmart's top line and profit growth rates in the mid- to long term," Drbul said. "Walmart is building a more diversified profit base, led by a growing marketplace and fulfillment services, advertising, financial services, data monetization, and its healthcare offering."
But despite the bull case on Walmart, one shouldn't overlook the fact the retailer must deliver exceptional results in the here and now.
Anything less may lead to Walmart's stock getting marked down like an out-of-season bathing suit.
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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