Walmart Stock Looks Poised to Reach $120 This Year

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Walmart (NYSE:WMT) stock traded higher in mid-May after the world’s largest retailer reported first-quarter numbers that topped analysts’ average expectations where it matters. Specifically, Walmart delivered higher-than-expected comparable sales growth and profits, more than offsetting a revenue miss.

Importantly, the company’s top line was negatively impacted by one-time currency headwinds. Investors cheered the results, and Walmart stock price popped a few percentage points.

Pros and Cons to Buying Walmart Stock Ahead of the Holidays

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The company’s  strong first-quarter numbers pave a path for Walmart stock price to head much higher over the next twelve months.

Walmart is firing on all cylinders right now. WMT has been firing on all cylinders for the past several years, and will continue firing on all cylinders for the foreseeable future. That’s because this company is innovating and improving rapidly, all while maintaining its core value proposition of industry-low prices and the most convenience in its sector. As a result, WMT is simultaneously increasing its  e-commerce market share and maintaining its dominant share of the brick-and-mortar market.

Ultimately, this combination of physical and digital retail success will push Walmart stock higher in 2019. Based on the company’s results, I believe that Walmart stock price could and should run to $120 by the end of the year. That implies a gain of nearly 20% from its current levels, which is pretty compelling. given the relative stability of WMT.

Consequently, I remain bullish on WMT stock. Walmart stock has found its winning recipe, and it will remain on a winning trajectory for the foreseeable future.

Strong Q1 Numbers Are a Continuation of the Trend

Walmart’s first-quarter numbers were really good. Its comparable sales rose by 3%.4%, powered by gains in both traffic and the average bill. E-commerce sales rose 37%. Operating margins, excluding its Indian subsidiary,  Flipkart, were largely stable. WMT maintained its guidance for 2.5% to 3% comparable sales growth this year, as well as 3% revenue growth and 35% e-commerce growth. The retailer also continues to expect its operating margin to rise, excluding Flipkart.

But those numbers aren’t what everyone should be most focused on. Instead, the most important  story  is that Q1’s strong numbers have become the norm for Walmart.

Earlier this decade, WMT was struggling to attract more shoppers and raise its prices at the same time. Competition from Amazon (NASDAQ:AMZN) and other e-commerce vendors was so intense that Walmart was struggling to avoid losing its core shoppers. Naturally, Walmart had to cut prices to  generate even a modest increase in its customer base, and that weighed on its margins.

Those days are long gone. Over the past several years, Walmart has become an innovative growth company in the retail space. Specifically, the company has created an e-commerce marketplace that is second to none in terms of size, reach, and delivery speed. The company has also developed multiple omnichannel commerce initiatives, such as Grocery Delivery, and those have helped create synergies  between its online and offline retail businesses, resulting in cost savings. At the same time, WMT has continued to update its stores and expand its product offerings, enabling it to attract more shoppers to its stores .

Using innovation, WMT is growing its online and offline retail businesses. But its  e-commerce business is still relatively small, and investors are just starting to focus  on it. Thus, this winning recipe will continue to work for Walmart and Walmart stock for a long time.

Walmart Stock Price Can Rise Meaningfully

Because the company is successfully combining online and offline retail – and because this winning recipe projects to keep working for a long time – WMT stock can rise significantly  from its current levels.

Over the past several years, Walmart has reported comparable sales growth in the low-to-mid-single-digit-percentage range. Going forward, its comp sales should rise at a similar rate, given the growth potential  of its e-commerce business and Flipkart. Low-to-mid-single-digit comp sales growth will naturally produce similar revenue growth. Margins will simultaneously expand somewhat, as the Flipkart business grows and goes from losing money to making money. Also, if WMT’s digital ad revenues become meaningful, they will help boost its margins the same way they have lifted AMZN’s margins.

Based on all those assumptions, I think Walmart’s earnings per share can reach $8 by fiscal 2025. Using a forward price-earnings multiple of 20, which is average for consumer-discretionary stocks, that implies a fiscal 2024 price target for WMT stock of $10. Discounted back by 8% per year (below my customary 10% discount rate to account for the 2% dividend yield of Walmart stock), that equates to a fiscal 2020 price target for WMT stock of nearly $120.

So the numbers indicate that Walmart stock price can realistically reach $120 over the next few months.

The Bottom Line on WMT Stock

WMT’s strong first-quarter numbers underscore that this company has found a winning recipe. As a result, its numbers will remain strong for the foreseeable future, enabling Walmart stock price to stay on a winning trajectory.

As of this writing, Luke Lango was long WMT and AMZN. 


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