Wal-Mart Stores, Inc. (WMT) Is Starting to Turn Heads

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Wal-Mart Stores, Inc.‘s (NYSE:WMT) investments in its employees and itself — not to mention Target Corporation‘s (NYSE:TGT) stumble — appear to be paying off in sales and the WMT stock price.

Wal-Mart Stores, Inc. (WMT) Is Starting to Turn Heads

Even better, there’s good case to be made that there’s much more upside to go.

Shares are up more than 15% for the year-to-date and sentiment is improving by the day. On Monday analysts at Cowen & Co. lifted their recommendation on WMT stock to “outperform” (buy, essentially) from “market perform” (neutral), citing a number of sustainable factors.

According to Cowen’s own proprietary data, higher wages and better training are making a dent. Employees more helpful and the stores look better. Strength in critical retail metrics in the most recent quarter further burnish the shine on Walmart stock.

It also doesn’t hurt that its biggest rival has made some missteps. From Cowen’s note to clients:

“We’re confident WMT’s positive US traffic (7 straight quarters) should continue over the next 2 years as WMT makes more aggressive price investments and makes further improvements in the customer experience. WMT’s impressive 2Q results of US comps of +1.6% driven by traffic of +1.2% demonstrated that the retailer is taking share at the expense of TGT, dollar stores, and grocers. The investments in wages/training from the last 2 years have elevated the store experience, as highlighted by customer satisfaction scores for the total shopping experience (76% of respondents) and customer service (63% of respondents) at 2-year high’s in our proprietary consumer survey.”

Is WMT on a Retail Roll?

Importantly, the story doesn’t end there. Hewing to its “always low prices” ethos, price rollbacks in the grocery category are helping to make WMT more popular with supermarket shoppers. Cowen also takes pains to remind investors that WMT is only a third of the way finished with its two-year program to make stores more desirable places for consumers.

It’s a compelling argument, but one part is a little harder to swallow. Walmart is making effort to get e-commerce growing but progress has been painfully slow. Part of the bear argument against Walmart stock is, of course, the existence of Amazon.com, Inc. (NASDAQ:AMZN).

The acquisition of Jet — an e-commerce site that skews younger and more urban — is intended to help WMT’s demographics. Too bad corporate efforts at cool never seem to work.

The key point on Walmart is that it is successfully addressing the things that were bringing the company — and WMT stock — down. Shabby stores or messily stocked shelves are a huge turnoff for shoppers. Just ask anyone who did back-to-school shopping at Sears Holdings Corporation (NASDAQ:SHLD) this year.

Shares are outperforming the S&P 500 by a wide margin so far in 2016. However, they’ve recently plateaued. Part of the sluggishness can probably be blamed on September being the worst month for market performance. That doesn’t mean you can dismiss the doubters.

Cowen’s more optimistic view is in the minority on Wall Street. Of the 27 analysts covering the stock, five have it at buy, three call it a sell and 19 say it’s a hold, according to a survey by Thomson Reuters. Cowen’s target price of $83 — up from $76 — is also on the rosy side.

Analysts’ average price target comes to $73 and change in the next year or so. The stock is currently trading between $71 and $72.

Bottom Line

By Cowen’s reckoning, the market is under-appreciating the effects of Walmart’s rejuvenation efforts and underestimating how much more progress is to come.

The market is less sure, but recent strength in all the right areas suggests WMT stock will reap more upside for its efforts.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2016/09/walmart-stock-wmt-analyst-buy/.

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