Walmart Inc. (WMT – Free Report) is a retail titan powered by its strong omnichannel presence, strategic diversification into high-growth areas, and solid financial position. The stock closed at $75.70 on August 23, just below its recent 52-week high of $76.22 on August 22, reflecting strong investor confidence in Walmart’s prospects.
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Over the past month, shares of this supermarket giant have gained 8.7% against the industry’s gain of 7.8%. Moreover, the company has outperformed the broader Zacks Retail-Wholesale sector and the S&P 500, which have grown 3.5% and 2.9%, respectively, over the same period. Walmart’s stock is trading above its 50-day and 200-day moving averages, signaling a continued uptrend.
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The power behind Walmart’s success
Like other leading players like Costco (COST – Free report), Goal (TGT – Free report) and BJs Wholesale Club (BJ – Free Report), Walmart has benefited significantly from its robust omnichannel strategy. This approach seamlessly combines its extensive brick-and-mortar presence with a fast-growing e-commerce platform, offering services such as in-store pickup, same-day delivery and ship-from-store options.
Walmart has strengthened its store network, which not only serves direct customer needs but also fulfills a significant portion of the company’s e-commerce orders. The company is also focusing on redesigning stores to incorporate advanced innovations in-store and online and to expand its merchandise assortment. These initiatives strengthen Walmart’s competitive advantage and enable the company to reach a broader customer base and increase sales.
Additionally, Walmart’s strategic investments in technology and e-commerce have cemented its position as a driving force in online retail. Initiatives such as Walmart GoLocal, Walmart Luminate, Walmart Connect and Sam’s Club MAP demonstrate the company’s commitment to improving the customer experience and operational efficiency.
In addition, Walmart’s advanced delivery capabilities and innovative services have redefined retail logistics. With its Walmart+ membership program and services such as Express Delivery, the company has strengthened its delivery capabilities. Notably, Walmart’s global e-commerce sales grew 21% in the second quarter of fiscal 2025, with penetration increasing across all markets.
Diversification remains a cornerstone of Walmart’s success. By moving beyond traditional retail into areas such as advertising, the company is opening up new revenue streams. Its burgeoning advertising business leverages rich consumer data and offers targeted marketing solutions that appeal to brands seeking effective reach.
All these efforts culminated in an impressive stock performance that reflects investor confidence and market validation.
Financial strength enables an attractive dividend strategy
Financially, Walmart is on solid ground, which has helped the company deliver consistent shareholder returns. The market leader has a solid dividend history, increasing its dividends for 50 consecutive years. This stable commitment to dividend growth underscores Walmart’s financial flexibility and solid cash flow generation. In the second quarter of fiscal 2025, WMT generated operating cash flow of nearly $12.1 billion and free cash flow of approximately $5.4 billion.
During the quarter, the company paid $1.7 billion in dividends and repurchased $1 billion worth of stock. According to the second quarter earnings release, the company had $14.5 billion left in its share repurchase plan. Walmart currently pays 35% in dividends and has a dividend yield of 1.1%. With an annual return on capital of 7.5%, dividend payments should be sustainable.
What do estimates say about WMT?
Walmart’s strong omnichannel initiatives and highly diversified business have contributed to its growth story. Strengths like these, along with a promising advertising business and efficient cost containment measures, pave the way for a bright future. Encouragingly, Walmart raised its guidance for fiscal 2025 at its last earnings call.
The company now expects fiscal 2025 consolidated net sales growth of 3.75-4.75% (at constant currency, or cc), compared to the previously expected 3-4%. Consolidated operating income is expected to grow 6.5-8% (at constant currency), compared to the previously forecast 4-6%. Walmart expects fiscal 2025 adjusted earnings per share (EPS) in the range of $2.35-2.43, above the previous guidance of $2.23-2.37.
The positive sentiment surrounding Walmart is reflected in the upwardly revised Zacks Consensus Estimate for earnings per share. Over the past 30 days, analysts have increased their estimates for the current and next fiscal years by 0.4% to $2.44 and by 1.1% to $2.70 per share, respectively. These estimates indicate expected annual growth rates of 9.9% and 10.8%, respectively.
Is Walmart’s path free of challenges?
Despite the tailwinds mentioned above, we recognize ongoing consumer concerns about economic stability, as evidenced by underlying inflationary pressures and a higher interest rate environment. These factors are contributing to a decline in consumer confidence and discretionary spending, particularly impacting non-essential categories within Walmart’s product portfolio.
In addition, Walmart has invested heavily in supply chain automation, e-commerce and other technologies. While these investments are critical for long-term growth, they represent significant capital and operating costs that could hurt short-term profitability. Walmart’s focus on maintaining low prices to attract customers may also put pressure on profit margins given its high operating costs.
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We recognize Walmart’s strong market position, but its current high valuation poses a risk. We note that the stock is trading at a P/E ratio of 29.26 for the next 12 months, which is above the industry average of 26.79 and also closer to its five-year high of 29.36. This suggests that investors may be paying a high price relative to the company’s expected earnings growth. Current valuation levels may put Walmart at increased risk of a valuation correction in case the company’s performance does not meet investors’ expectations. Currently, WMT has a Value Score of C.
Should you cash in or hold on to your Walmart shares?
Walmart continues to prove its impressive presence in the retail sector, backed by a robust omnichannel strategy, strategic diversification, and solid financial health. While economic uncertainty and stretched valuation are concerns, Walmart’s proactive measures, promising growth estimates, and impressive share price performance point to continued success for the company. All in all, prospective new shareholders should consider the current valuation before jumping in, but current shareholders should maintain their position in this Zacks Rank #3 (Hold) stock.
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