Walmart Posts Record Surge in Q2 Online Sales; Buy with Target Price $150

Walmart Inc, an American multinational retail corporation that operates a chain of hypermarkets, said its total revenue increased 5.6% in the second quarter to $137.7 billion and posted its biggest growth in online sales as buyers purchased everything from the comfort of their homes amid COVID-19 pandemic.

The world’s largest company by revenue said its U.S. sales increased 9.3%, led by strength in general merchandise and food and U.S. eCommerce sales grew 97% with strong results across all channels. Growth in membership income was the highest quarterly increase in more than five years. New member count increased by more than 60%.

“We like Wal-Mart’s global scale, extensive international growth opportunity, increasing focus on e-commerce and smaller Neighborhood Markets, and the company’s status as a large-cap defensive stock,” said Oliver Chen, equity analyst at Cowen.

“We believe improving US comps and the health of the US consumer are key positives for the stock and believe top-line momentum is set to continue in FY21 & FY22 driven by price investments and an improved store experience. We rate WMT Outperform with a $155 price target on ~28x our FY22 EPS of $5.50E,” Chen added.

The company said its operating income rose 8.5% to $6.1 billion in the quarter, while adjusted earnings per share of $1.56.

However, Walmart said its international net sales were $27.2 billion, a decrease of 6.8% as volatile currency rates negatively affected net sales by approximately $2.4 billion. The company’s net sales and operating results were significantly affected by a continuation of the global health crisis.

Walmart shares closed 0.6% lower at $134.7 on Tuesday, but it is up over 13% so far this year.

Walmart stock forecast

Twenty-two analysts forecast the average price in 12 months at $142.35 with a high forecast of $160.00 and a low forecast of $130.00. The average price target represents a 5.67% increase from the last price of $134.71. From those 22, 16 analysts rated “Buy”, six rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $150 with a high of $240 under a bull scenario and $95 under the worst-case scenario. D.A. Davidson raised the price target to $154 from $148 and RBC raised it to $137 from $132.

Other equity analysts also recently updated their stock outlook. Keybanc raised the price target to $150 from $138, Raymond James upped the price objective to $145 from $140, Jefferies increased it to $157 from $151 and Stifel upgraded it to $130 from $125.

We think it is good to buy at the current level and target $150 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“We expect Walmart to sustain recent momentum in its core business in F’21/F’22 and see a growing ability to balance longer-term investments with near-term returns. Our OW rating and $150 PT are underpinned by a preference for 1) quality players with scale and 2) defensive retailers in the current COVID-19 environment,” said Simeon Gutman, equity analyst at Morgan Stanley.

“We think the launch of Walmart+ could serve as a sustainable positive tailwind for the stock (assuming the program benefits are made clear through disclosure of subscriber numbers or higher sales growth). In our base case we have estimated up to 20 million members may be willing to sign up for Walmart+ within six months of launch (per our AlphaWise survey data). Assuming a 1.7x spending uplift for existing Walmart shoppers that sign up for the program and breakeven e-commerce operations by the fifth year of membership yields $30 billion of NPV for Walmart ($10/share).”

Upside and Downside risks

Upside: 1) Comps accelerate to +MSD-HSD led by continued Grocery strength. 2) Sustainable US e-comm growth of 50-60%+ behind Click & Collect momentum. 3) PhonePe gains wider market appreciation, driving incremental multiple expansion. 4) Walmart+ gains more traction than expected – highlighted by Morgan Stanley.

Downside: 1) E-commerce loses begin to rise again after briefly moderating. 2) US e-comm growth slows to<30% (comps<2%). 3) Greater than expected Flipkart losses.