Is There Anything That Can Stop Walmart's Rally? Some Analysts Believe High Expectations Are to Blame

Over the past three years, Walmart Inc. has significantly benefited from rising prices, with its stock value more than doubling in that period. As consumers look for ways to save money, Walmart has gained an edge over smaller competitors, posing a growing threat to beauty retailers, dollar stores, and convenience chains. Additionally, the company has successfully attracted wealthier customers and expanded its digital advertising operations.

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Despite high expectations for 2025 and the impact of increased tariffs, analysts remain optimistic about Walmart's continued dominance. The trend of consumers favoring large-scale retailers at the expense of smaller businesses appears to be strengthening.

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BMO analyst Kelly Bania highlighted this shift in a research note, stating that major players such as Walmart, Costco, and Amazon are capturing a significant portion of market share. She estimated that Walmart's U.S. stores, Sam’s Club, Costco Wholesale Corp., and Amazon collectively account for 35% to 40% of the U.S. food and consumables market.

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Analysts from Bank of America (BofA) echoed this sentiment, predicting that Walmart’s market share gains will persist across different income levels. They expect strong performance in Walmart’s grocery segment as consumers continue prioritizing essential purchases. Moreover, the company’s health and wellness division is also poised for growth. BofA analysts noted that even during the shorter holiday shopping season last year, Walmart customers remained active, likely taking advantage of the retailer’s fast service options to purchase gifts in time.

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Walmart’s digital advertising division is another potential growth driver. This business allows brands to pay for promotional placement in Walmart’s stores and online platforms, providing a revenue stream that could help offset weaker demand in non-grocery categories. As more consumers focus on necessities, this advertising strategy could become an increasingly valuable asset for the retailer.

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However, some challenges remain. Bania pointed out that the 10% tariff on Chinese imports—implemented as part of former President Donald Trump’s push for better trade deals—could have a slight negative impact on Walmart’s profitability. Additionally, fluctuations in foreign exchange rates pose a potential risk. Walmart’s chief financial officer previously indicated that the company might need to raise prices on certain products in response to heightened tariffs.

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BofA analysts also acknowledged that Walmart’s competitors may intensify their discounting efforts. Their research suggests that many food retailers have been narrowing their price gaps with Walmart compared to pre-pandemic levels. If these trends continue, Walmart could face increasing pricing pressure from rivals.

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Another consideration is Walmart’s current stock price, which is near record highs. With expectations already elevated, any financial misstep could limit further stock price appreciation. BofA analysts pointed out that Walmart is facing tough year-over-year comparisons, making it harder for the stock to continue its upward trajectory relative to competitors.

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This week, 46 companies from the S&P 500 are set to release earnings reports, according to FactSet. Among them, several major fast-food chains, payment service providers, e-commerce platforms, and retailers will offer insights into current consumer trends.

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Following McDonald's Corp.'s recent announcement that it expects to expand its profit margin—despite increasing discount promotions and economic challenges for lower-income consumers—investors will be paying close attention to other restaurant chains. Wingstop Inc., Cheesecake Factory Inc., Shake Shack Inc., and Texas Roadhouse Inc. are among the food companies reporting earnings, providing a clearer picture of the dining-out landscape.

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In the e-commerce and payments space, companies like Block Inc., Wayfair Inc., and Etsy Inc. will unveil their latest financial results. Inflation continues to constrain discretionary spending, disproportionately affecting smaller businesses. Analysts will be watching these reports to gauge the health of online retail and digital payment services.

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German footwear company Birkenstock Holding Plc is another company on the earnings calendar. As it seeks to diversify its offerings beyond its signature sandals, investors will assess how well its broader footwear expansion strategy is playing out. Similarly, Freshpet Inc., which sells premium pet food, will report earnings as analysts weigh consumer spending on pet-related products amid recent concerns over slowing sales.

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The earnings lineup also includes electric-truck manufacturer Rivian Automotive Inc., online used-car retailer Carvana Co., and mattress producer Tempur Sealy International Inc. Each of these companies faces unique challenges in an environment shaped by fluctuating consumer demand and economic uncertainty.

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One of the most highly anticipated earnings releases this week comes from Live Nation Entertainment Inc., the parent company of Ticketmaster. The company will report quarterly results on Thursday, and analysts at Oppenheimer are optimistic about its future. They pointed to an increase in large-scale concerts and extended tours, as artists seek to compensate for minimal streaming revenue by performing more shows. This surge in live events could make 2025 a record-breaking year for concert attendance.

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However, Live Nation is also dealing with regulatory scrutiny. The U.S. Department of Justice (DOJ) filed an antitrust lawsuit against the company last year, raising concerns about potential legal hurdles. While the Trump administration has signaled a preference for lighter regulations, Oppenheimer analysts noted that the DOJ’s case appears to have bipartisan support, meaning that the legal risks for Live Nation remain significant.

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A Key Metric: Hasbro’s Sales and Outlook

Hasbro Inc. is another company drawing investor attention this week. Mattel Inc. recently posted stronger-than-expected earnings and provided an optimistic profit forecast, partially due to potential price increases aimed at countering new tariffs. The company also expects continued strong performance from its Barbie brand, thanks to momentum from the blockbuster “Barbie” movie.

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For Hasbro, the primary focus will be its gaming division, which makes up approximately 75% of its profitability. UBS analyst Arpine Kocharyan noted that while Hasbro benefited from a decent holiday season, investors will be more interested in the company’s gaming portfolio outlook for 2025. Key areas of interest include growth prospects for Magic: The Gathering, the profit margins of new gaming revenue, and the performance of Monopoly Go and other digital gaming initiatives.

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As Walmart and other major retailers continue shaping the competitive landscape, the broader market will be closely watching earnings reports this week for insights into consumer behavior and economic trends.

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