Bullish on Walmart: Market Analysts Unveil Bright Outlook Despite Economic Headwinds

Citigroup analyst Paul Lejuez maintained Walmart Inc WMT with a Buy and raised the price target from $174 to $180.

The 2Q results were strong, and FY23 guidance was also encouraging. 

While the stock traded off, the analyst did not think it reflected underlying fundamentals but rather positioned going into the quarter (and expected shares to bounce back fairly quickly). 

The company seems to be hitting its stride, driving sales with traffic and ticket (not solely reliant on inflation to drive sales) and expanding gross margin (without investing in price as price gaps remain wide). 

WMT's mindshare in value is increasingly driving consumers to the stores/website as the economic backdrop remains uncertain. 

The company is taking share in grocery, is starting to see signs of life in general merchandise, and BTS has started strong, all of which bodes well for the second half. 

Because he expects the consumer to continue gravitating toward value retailers, he believes WMT is well-positioned in the current environment. 

Telsey Advisory Group analyst Joseph Feldman reiterated Walmart with an Outperform and a $185 price target.

Walmart feels modestly better about consumers' health than three months ago, although the company highlighted multiple reasons to be cautious in the second half of FY23. 

On the negative side, the full effects of the Fed's interest rate hikes are yet to reflect; consumer credit is tightening, gas prices are creeping higher, and student loan payments will likely resume in October. Internally, Walmart continues seeing consumers trade down and into its ecosystem.

Regionally, the company has seen initial signs of tourism slowing in popular U.S. destinations, like parts of Florida. However, on the positive side, inflation is moderating, and employment and wage growth remain solid. 

In addition, Walmart saw 300 bps of sequential improvement in general merchandise sales to down low single digits in 2Q at Walmart U.S. Regardless of the environment, Walmart should be able to gain market share. The shift toward defensive and value-focused items in a weaker economy should bring customers to Walmart. 

In a more robust economy, the change toward discretionary should help drive sales and profit growth.

2Q Walmart's general merchandise sales sequentially improved 300 bps from 1Q to negative low single digit. 

The company continued to gain market share in broad merchandise categories, driven by company-specific initiatives, such as product expansion, a focus on value, and strong execution. 

Walmart also called out the development of its marketplace, which reported double-digit growth in apparel, home, and hardlines in 2Q. Solid consumer response to seasonal events, such as Mother's Day and July 4, and the start to back-to-school, has increased Walmart's confidence for the second half of FY23. 

That said, the company expects a gradual recovery of general merchandise rather than a sharp rebound.

Price Action: WMT shares are down 0.22% at $157.58 on the last check Monday.