Healthcare Could Be Silver Bullet for Walmart in Long Term; Target $140: Morgan Stanley

Walmart Inc, an American multinational retail corporation that operates a chain of hypermarkets, has recently moved into the healthcare space with its own insurance business which could be a ‘silver bullet’ for the world’s largest retailer over the long-term, according to Morgan Stanley.

Walmart on July 8 revealed that it has created an insurance company named ‘Walmart Insurance Services LLC’ to sell Medicare insurance with its groceries and clothing, starting from August.

“There is scant detail around Walmart’s overarching health strategy aside from the fact that it wants to improve access to, and reduce the costs of, healthcare in the US. From that perspective, a multi-pronged approach makes a lot of sense and recent steps are clear indications this is what Walmart is pursuing. We don’t know if/how Walmart plans to directly monetize CareZone, or the details of its pricing/distribution strategy in relation to selling health insurance,” Morgan Stanley’s analysts wrote.

In June, Walmart bought CareZone’s medication management technology and intellectual property, in a move to strengthen its digital health presence. The largest retail corporation owns four health centres in the United States, which provides counselling and dental care to its customers at a low price – annual checkup for $30 or a strep test for $20.

“These two initiatives are certainly going to be immaterial to Walmart’s P&L in the near- to medium-term. However, its huge customer base and a gigantic market opportunity to reduce inefficiencies make Walmart’s deeper foray into healthcare sensible, in our view. We expect to see its suite of initiatives grow over time,” analysts added

Morgan Stanley target price is $140 with a high of $180 under a bull scenario and $100 under the worst-case scenario.

“Comps accelerate to +MSD-HSD led by continued Grocery strength. Sustainable U.S. e-comm growth of 50-60%+ behind click & collect momentum and traction with long-tail assortment. PhonePe gains wider market appreciation, driving incremental multiple expansion,” Morgan Stanley highlighted as upside risks to Walmart.

“E-commerce losses begin to rise again after briefly moderating. U.S. e-comm growth slows to<30% (comps<2%). Greater than expected Flipkart losses,” Morgan Stanley highlighted as downside risks to the world’s largest retailer.

Twenty-three analysts forecast the average price in 12 months at $138.15 with a high forecast of $150.00 and a low forecast of $120.00. The average price target represents an 8.14% increase from the last price of $127.75, according to Tipranks. From those 23, 19 analysts rated ‘Buy’, four analysts rated ‘Hold’, and none rated ‘Sell’.

“As the lines between Retail, Healthcare & Tech blur, WMT’s growing suite of initiatives make it a sleeping giant to watch,” analysts added.