Yahoo Finance Walmart shares are on a tear, with further growth expected from the retail giant
America's biggest retailer is reeling in value-focused shoppers, as analysts project a continued rise for its stock
Walmart (WMT) has been off to the races this year.
The retail giant beat its fourth quarter earnings estimates, announced the acquisition of smart TV maker Vizio (VZIO), and conducted a 3-for-1 stock split. It also continues to gain shoppers across the income spectrum while setting a new record for its stock price.
Its expanding grocery business is a key draw for cautious consumers who may not visit purely discretionary retailers but are still shopping for essentials.
"Walmart's in a double tailwind position to gain both low- and high-end consumers over the coming years," with 60% of the Walmart US sales coming from grocery alone, Deutsche Bank analyst Krisztina Katai told Yahoo Finance over the phone.
The trend of value-focused high-income shoppers is only growing, and they're leaning into e-commerce offerings like Walmart.com and Walmart+, said Katai.
Struggles from discount retailers like Dollar Tree, which is closing 1,000 Family Dollar locations in the coming years, are only bolstering Walmart as a budget destination. The chain is in a "very strong position to continue to gain market share at the low end from Family Dollar store closures," added Katai.
Walmart is in "a favorable position as the largest food retailer in the US, especially at a time when the macro direction remains uncertain and consumers continue to seek value," Citi analyst Paul Lejuez wrote in a client note.
The company's scale and close-knit vendor relationships give it an advantage on pricing, allowing it to keep up promotions like "rollbacks" or temporary sales.
"The number of rollbacks have increased about 50% year over year in the back half of last year," Katai said.
On March 21, 2024, Walmart stock reached a record closing high of $61.45 per share. So far this year, its shares are already up 14%, beating the S&P 500's (^GSPC) 10% gain.
Rival Target (TGT) may be hot on its heels as it plots a comeback after a lackluster 2023; its shares are now up 20% year to date.
"Walmart is a defensive [stock], so whenever we see a flight to safety, we think Walmart benefits from that," said Katai, who sees a continued rise for the stock.
Management's reinvestments in the business, such as automating its supply chain and fulfillment centers, are boosting its top-line growth and operating profit.
Lejuez wrote the company is "significantly ahead of its retail competition in terms of technology investment, which over time we believe can help drive unit costs even lower."
In Q4, its operating income in the US grew 13.0% year over year while its US same-store sales were up 5.6%.
The company is also investing $9 billion to modernize more than 1,400 US stores over two years, which will strengthen its product assortment and increase convenience options like pickup and delivery. The company is becoming a "very different Walmart ... from even five to 10 years ago," said Katai.
The $2.3 billion Vizio deal could pave the way for more revenue streams in the coming years as Walmart starts to shoulder in on the advertising business. Amazon reels in over $50 billion in annual advertising revenue, while Walmart only managed $3.4 billion in 2023, giving it a lot of room for catch-up.
"[Advertising] is a fast-growing high-margin part of our business," Walmart CFO John David Rainey recently told Yahoo Finance Live. "And what this deal with Vizio does — it’s very complementary to what we’re doing organically."
The consumer data "is quite valuable" as it grows other parts of its ecosystem, especially its Walmart+ membership platform, Telsey Advisory Group senior managing director Joe Feldman told Yahoo Finance over the phone.
Walmart is "trying to build something like an Amazon Prime; this could be a way towards doing that," Feldman added. However, he's skeptical about the price that Walmart is paying, and what this could mean for other retailers that sell Vizio TVs like Costco (COST), Target, and Best Buy (BBY). Walmart is the largest seller of Vizio TVs.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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