Another Analyst Upgrades Walmart's Stock to Record Territory

Shares of Walmart Inc. surged on Tuesday, pushing the stock back into record territory after Truist Securities shifted to a more optimistic outlook on the retail giant. Analyst Scot Ciccarelli upgraded his rating on Walmart’s stock from "hold" to "buy," a significant change from his previous stance since at least January 2022. Ciccarelli also raised the price target for the stock from $76 to $89, reflecting his growing confidence in Walmart’s market position.

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Following this announcement, Walmart’s stock (WMT) rose 0.4% in early trading, crossing above its previous record closing price of $80.60 set on September 13. Ciccarelli attributed the stock's momentum to Walmart’s continued success in gaining market share across various income levels, emphasizing the company’s strong focus on competitive pricing, convenience, and product assortment. In a note to clients, Ciccarelli highlighted that Walmart is leveraging higher-margin revenue streams, such as advertising, membership services, and its marketplace for third-party sellers, to both widen the price gaps with competitors and structurally improve its profit margins.

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Ciccarelli believes this combination of factors—accelerating market share gains, Walmart’s role as both an offensive and defensive stock, and its more profitable business model—positions the company for a valuation much higher than its historical average. He stressed that Walmart's ability to thrive in both favorable and challenging market conditions is rare, particularly among mega-capitalization stocks. As a result, the company stands out as an attractive investment option in the current economic environment.

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Even though Walmart is already a massive company, its growth potential remains impressive. Ciccarelli noted that the company is expected to see same-store sales grow by about 4% in the current fiscal year. This comes after an even stronger performance last year, when same-store sales rose by 5.6%. Total revenue for the current fiscal year is projected to increase by 4.7%, reaching $678.3 billion, following a 6% rise last year. For a company of Walmart's size to continue growing at this pace, Ciccarelli observed, it indicates that Walmart is consistently capturing market share from its competitors.

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"When you are that big and still growing at that rate, who are you taking share from?" Ciccarelli remarked. "Almost everyone."

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He also pointed out that Walmart has undergone two significant transformations in recent years, which have contributed to its ongoing success. The first transformation, initiated about eight years ago, involved a complete overhaul of the company’s core retail operations. Walmart reinforced its commitment to low prices, improved the overall shopping experience, and significantly enhanced convenience by offering services such as home delivery, buy-online-pick-up-in-store (BOPIS), and subscription-based options like Walmart+. These initiatives have helped Walmart maintain its leadership in the highly competitive retail space.

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The second transformation, which is still in its early stages, involves a shift in Walmart's business model to capitalize on high-margin revenue streams. By expanding its advertising capabilities and growing its Walmart Marketplace for third-party sellers, the company has created new sources of revenue that help offset the traditionally low margins of its core retail business. Ciccarelli believes these changes will lead to a new valuation paradigm for Walmart, positioning the company for even greater long-term success.

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As Walmart continues to evolve and strengthen its market position, the stock has gained considerable attention from analysts. Following Ciccarelli’s upgrade, 35 out of 39 analysts surveyed by FactSet now have a "buy" rating on Walmart, representing 90% of those covering the stock. This marks an increase from the end of August when 32 analysts were bullish. Only three analysts currently maintain a "neutral" rating, and one holds a bearish outlook.

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Walmart's stock performance in 2024 has been impressive, rising by 53.4% year to date. In comparison, the Consumer Staples Select Sector SPDR ETF (XLP) has gained 15.3%, the Consumer Discretionary Select Sector SPDR ETF (XLY) has risen by 11.7%, and the S&P 500 index has advanced by 20%. Walmart’s strong performance, coupled with its strategic shifts and ability to capture market share, has made it a standout stock in both the retail sector and the broader market.

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In summary, Truist's upgrade of Walmart underscores the company's ability to navigate a complex retail landscape while continuing to innovate and capture market share. With its growing high-margin revenue streams and consistent operational improvements, Walmart is well-positioned for future growth, making it an attractive investment opportunity for both defensive and growth-oriented investors.

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