10 Reasons Why Investors May Start To View Walmart As A Tech Stock

With Walmart+ on the horizon, Walmart Inc WMT stock faces a shifting narrative as the retailer becomes a potential Amazon Prime competitor.

Morgan Stanley's Simeon Gutman named 10 reasons why Walmart+ could shift the stock’s narrative:

1. After continued speculation about a possible Walmart membership program, the stock finished up 7% on July 7 and up 10% for that week. The analyst focused on the timing and the perceived value of Walmart+ over the second quarter.
2. The stock is shifting due to a changing environment as a result of COVID-19, tech stocks garnering widespread interest from investors, the retail investor effect and the potential Walmart+ subscription model, which Gutman said yields a higher multiple.
3. The analyst said there is room for a “a second subscription model in retail.” Due to Walmart’s assets, size and scale, he said Walmart seems to be the logical second winner.
4. With the launch of “Delivery Unlimited” in June 2019, Walmart already has a successful platform that it can use to transition into Walmart+.
5. The “pay and forget” aspect of the Walmart + subscription model will increase the likelihood of Walmart adding and retaining members.
6. “A subscription model could change the conversation for WMT, allowing it to invest more freely into the business and earning a higher multiple by doing so,” the analyst said.
7. Walmart has omni-channel assets in place, which increases its chances of success with a subscription model. Walmart’s main channel is grocery, but Gutman said “healthcare/pharmacy capabilities could be a game changer.”
8. Gutman doesn’t expect the EPS algorithm to worsen, because Walmart has demonstrated an ability to balance its investments with growth using cost productivity.
9. Walmart’s valuation will be driven by faster growth and returns, Gutman said, adding that the retailer’s U.S. digital growth has averaged nearly 40% in recent years.
10. Finally, Gutman insulates the bear case given the economic backdrop and puts the $180 bull case in play “based on an expanding multiple driven by higher [e-commerce] penetration.”

Gutman maintained an Overweight rating on Walmart with a $140 price target.

Photo credit: Mike Mozart, via Wikimedia Commons