Wal-Mart Stores, Inc.: 3 Exciting Catalysts for a Surge in WMT Stock

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WMT Stock - Wal-Mart Stores, Inc.: 3 Exciting Catalysts for a Surge in WMT Stock

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Wal-Mart Stores, Inc. (WMT) stock is one of the largest traded companies in the United States, with a market capitalization of $230 billion.

Wal-Mart Stores, Inc.: 3 Exciting Catalysts for a Surge in WMT Stock

The company, which reported revenue of $482 billion in the last fiscal year, continues to work on new ways to add billions of dollars to that annual total.

Investors may be surprised to learn that some of the newest initiatives could lead to big gains in WMT stock. Walmart’s investments in categories like beer and wine, delivery, producing its own milk and running its own gas stations are leading the way for the future.

Walmart Takes on Craft Beer and Wine Market

Craft beer has been one of the biggest growth trends across the beverage industry. That trend has translated well to retailers who stock local and national craft beers and get strong traffic as a result.

WMT sells beer and craft beer just like the other massive retailers. Walmart is taking it a step further by creating its own private label beer.

Through a partnership with Rochester, New York-based Trouble Brewing, Walmart quietly rolled out offerings like Cat’s Away IPA, After Party Pale Ale, Red Flag Amber, and Round Midnight Belgian White. A 12 packs sell for $13 and you would have to do some deep digging to realize that it is WMT behind the beers.

Untappd, one of the leading craft beer enthusiast sites, has user ratings for all four Walmart beers. Cat’s Away IPA leads the way with 4,072 ratings and a 3.28 (out of 5) star rating. After Party has 3,516 ratings, Red Flag Amber has 3,213, and Round Midnight has 3,094.

The new beer from Walmart is available in 2,200 of its roughly 4,600 U.S. stores.

Meanwhile, if you ask a wine enthusiast what their favorite bottle of wine is, chances are they won’t say one from Walmart or that costs less than $7.

You may be surprised to learn that WMT makes a bottle of wine that just was named one of the best in the world. La Moneda Reserva’s Malbec was just named the Platinum Best in Show at the Decanter World Wine Awards.

This wine, made by Walmart subsidiary Asda, was crowned champion by 240 judges in a blind taste test, beating out more than 16,000 entries. WMT’s efforts on beer and wine are another way it is making itself the one-stop destination for consumers.

Delivery a Big Market for Walmart

Walmart announced on its blog that it was piloting a delivery service using popular ride-sharing companies Uber, Lyft and Deliv. The tests will hit major cities like Phoenix (Uber) and Denver (Lyft).

Customers will pay a $7 to $10 delivery charge online with their order, exchanging no money with the driver bringing their order.

It promises to start small with this initiative and listen to customers’ guidance on how to improve and scale the process. Walmart already rolled out a delivery service for some of its Sam’s Club locations using Deliv earlier this year.

If you are reading this and think that delivery would never be a big thing for a company of Walmart’s size, you may want to reconsider. A whopping 90% of the U.S. population live within 10 miles of a Walmart. While this makes a trip there rather short, it also makes a delivery service equally short and a big way WMT can use its massive size to continue to grow sales and fight off competition from the growth of e-commerce.

Delivery also strengthens and extends on one area Walmart stock has seen success, especially internationally, and that is pick-up ordering. Grocery pick-up was highlighted during the first quarter earnings call, with nine new markets added in the quarter.

WMT Stock Taking on Milk and Gas

Like other massive retailers, Walmart sells a large quantity of milk yearly. It also sells a large quantity of gas via its gas stations thanks to the convenience for its customers. WMT stock could get a boost from focusing on expanding margins and sales in both these markets.

Walmart announced plans to build its own dairy processing plant to make milk for more than 600 of its stores in the Midwest. It believes this plant will help the company control its costs and provide better margins on a top-selling product.

Dean Foods Co (DF), a current Walmart supplier, saw its stock fall double digits on this news.

DF will still provide milk for more than 5,000 Walmart stores. If the move proves successful, it could eventually look to lower its dependence on Dean Foods. The loss was estimated to be 100 million gallons by Dean Foods.

Remember that other large grocers like The Kroger Co (KR) make their own milk in a highly fragmented market.

WMT stock is also putting the pressure on another supplier — Murphy USA Inc (MUSA), a gas station partner. Murphy USA currently runs 1,100 gas stations at Walmart stores thanks to a 20-year partnership. Walmart announced it is taking over the future operation of gas stations at new stores and those where one is not currently present.

It already owns all existing gas stations at its Sam’s Clubs locations.

WMT believes this is in line with the big picture strategy to drive traffic and sales to its stores. With plans to open 300 new stores, this new move could pay off for WMT stock sooner than later.

I would have to believe Walmart has also considered the idea of buying out the 1,100 stations already owned by Murphy USA. Gas stations have some of the best margins in the industry and Walmart stock holders could soon benefit.

Conclusion for WMT

WMT stock got a nice boost after the company reported first-quarter earnings in May. Earnings per share of $0.98 came in above guidance. Revenue of $115.9 billion also exceeded analysts’ estimates.

Walmart stock has been trading in the $70s since the end of May. It actually started 2016 near the $60 level and has performed nicely in 2016.

A company of Walmart’s size continues to face competition and challenges on how to continue its growth. While store expansion and international growth will be the big stories, investors should look to new catalysts like the three mentioned above.

All of these items represent ways Walmart can increase revenue, but more importantly also increase profits.

Analysts are expecting marginal revenue growth of 0.8% for the current fiscal year and fiscal 2018 revenue nearing $500 billion. With the company focusing on expanding growth, I have to think $500 billion will come sooner than expected.

As of this writing, Chris Katje did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/06/wmt-stock-walmart-catalysts/.

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