Why are analysts pounding the table for a retailer with 3% growth, a price-to-earnings multiple of 25x, and a dividend yielding just 1.64%? Maybe because it’s Walmart (NYSE:WMT). Walmart should have revenue of $535 billion this year, which always helps Walmart stock stick out in investors’ minds.
After all, that’s about the GDP of Michigan, or Thailand.
Since becoming CEO in 2014, Doug McMillon has built a “coaching tree” of top executives to rival Patriot coach Bill Belichick’s. New eBay (NASDAQ:EBAY) CEO Jamie Iannone is just the latest.
Walmart is still nearly twice as big as Amazon (NASDAQ:AMZN), and has been the country’s largest company for 8 straight years. The children of founder Sam Walton are America’s richest family, worth $130 billion.
That doesn’t mean Walmart stock can’t be overpriced.
Where’s the Growth?
McMillon continues to look everywhere for growth.
The latest initiative is Walmart+. It’s pitched as an alternative Amazon Prime, offering same-day delivery of groceries and discounts at Amazon fuel pumps.
The problem is half of Walmart’s target market are already Prime members. Some of the “benefits,” like early access to “deals,” aren’t game changers. There’s also no video component. Walmart sold its Vudu video unit in April. The program could make Walmart.com profitable, something most e-commerce sites can’t say because of shipping costs. But despite the crowing of analysts, Walmart is still No. 2 in e-commerce.
More promising is the launch of Walmart Insurance Services. It’s part of a broader reach into healthcare, which includes a partnership with a Pharmacy Benefit Manager and larger in-store clinics delivering primary care. Such clinics could keep Walmart stores from having to downsize as retailing moves online.
But CVS Health (NYSE:CVS) is already well ahead of Walmart in this area, having bought Aetna in 2018. Might Walmart next buy Walgreen Boots Alliance (NYSE:WBA)? That stock’s market cap is down to $35 billion, on revenue of $137 billion. Don’t bet on it.
The problem with getting into health is it puts Walmart where it doesn’t want to be, in the middle of controversy. When a couple in Minnesota decided to protest mask requirements by putting Nazi swastikas on their faces, they went to Walmart. When a Florida man decided to draw his gun in a dispute over masks, it was at a Walmart. And Walmart isn’t even enforcing the mask rule.
Things Don’t Work
In other areas, Walmart is in full retreat, which doesn’t help the bullish case for Walmart stock.
For example, Walmart is killing Black Friday, the model for things like Alibaba’s (NYSE:BABA) Singles Day. Its decision to close on Thanksgiving is an acknowledgement that the tradition is dying.
Walmart has sold its Best Price Modern Wholesale stores in India to Flipkart, although past investments mean it controls Flipkart. The company will now be run by Indian executives.
Walmart is also trying to get out of England. It wants $9 billion for the Asda supermarket chain, which it bought 20 years ago.
The Bottom Line on Walmart Stock
Sure, Walmart stock is a better stock to buy than Dollar Tree (NASDAQ:DLTR) But you’re even better off in Dollar General (NYSE:DG), which has doubled Walmart’s gains the last two years.
I’m not criticizing the company. Its efforts to reduce the use of plastics is admirable. Selling groceries directly through Verizon’s (NYSE:VZ) e-mail service is innovative. As McMillon churns his C-suite, he’s still willing to bring in outsiders.
Walmart stock is a conservative investment that has done OK over the long run and should continue to do so. But Walmart’s size means its upside is limited.
If you overpay now it may be years before your Walmart investment pays off.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN and BABA.
