Walmart Stock Is Moving, But Why?

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Walmart (NYSE:WMT) shares are up 30% so far in 2019. But looking at Walmart’s financial results I must ask, why? The company grew its top line by less than 3% in 2018. Its bottom line was lower. For the first half of its 2020 fiscal year, the company is hoping for growth of about 3%. The whisper number for Walmart’s third quarter, due for release Nov. 16, is revenue of $129 billion. It will need to hit $146 billion over Christmas to hit that 3% figure.

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What’s happening is that investors are paying more and more for Walmart’s earnings. The trailing price-to-earnings ratio is now 27, against 20 for Apple (NASDAQ:AAPL). WMT’s dividend of 53 cent per share now yields 1.8%, about the same as a 10-year U.S. Treasury bond.

But, golly gee, Walmart sure looks like it’s doing something.

What Walmart Is Doing

To look at the headlines you’d think Walmart was more aggressive and innovative than any company this side of Amazon (NASDAQ:AMZN).

Does Amazon deliver to your door? Walmart will deliver to your refrigerator.

Is Amazon getting into healthcare? Walmart launched its new Walmart Health store outside Atlanta — and it’s as big as the average grocery store. Is Amazon expanding into India? Walmart is opening grocery stores there for Flipkart, originally an e-commerce site that WMT holds a majority stake in.

Does Amazon sell great talking electronics? Walmart is putting its brand on Roku (NASDAQ:ROKU) speakers. Do you like Amazon Prime Video? Walmart has Vudu, focused on family friendly shows Walmart used to sell as DVDs.

Does Amazon have a reputation for low prices? Walmart is subsidizing its online merchants this Christmas to keep their prices lower.

Walmart’s Problem

The problem is, none of these things move the needle. With 2018 sales of $514 billion, Walmart needs $15 billion more in revenue to hit that 3% growth figure. Creepy delivery guys handing me my yogurt and a single big clinic aren’t going to do that.

For Walmart to grow, the U.S. consumer must be in a healthy headspace this holiday season. In September, consumer confidence fell sharply.

Walmart quietly replaced its U.S. store head, Greg Foran, with Sam’s Club CEO John Furner this month. Furner is said to have done a fantastic job turning around Sam’s. Revenue at Sam’s Club during the most recent quarter was up by about 2%. The average ticket size was down 4%.

Walmart has an Intelligent Retail Lab in Levittown, New York that uses artificial intelligence to try to re-imagine retailing. The 50,000 square foot store has 100 servers, 10 cooling towers, cameras, sensors and real-time analytics. But it’s still a grocery store — and the technology isn’t reducing headcount. The Intelligent Retail Lab employees 130 workers, just like all other Walmart Neighborhood Markets.

The Bottom Line on Walmart Stock

Walmart’s problem is that it’s a retailer. It’s a very good retailer. It’s a very big retailer. But it’s still a retailer.

If Walmart were able to increase its share of the U.S. retail market significantly, Massachusetts Sen. Elizabeth Warren would want to break it up. That means it can’t be a growth company without significant international growth, and international sales are flat.

Walmart is running to keep up that 3% growth pace, which requires it to add the sales of Nordstrom (NYSE:JWN) to its total each year. Walmart is not a tech company. It’s supposed to be the kind of stock you buy for its dividend, but that dividend is only rising by 4 cents per year, which is why the yield is declining.

Walmart would look pretty good at about $100 per share. That would bring the yield up to that of the 30-year Treasury, fine for a slow-growing retailer. It’s just not Apple. Investors shouldn’t pretend otherwise.

Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and AAPL.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2019/10/walmart-stock-movement-appears/.

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