On Monday, investment firm Evercore ISI adjusted its outlook for Walmart Inc (NYSE:WMT) by significantly reducing the company's price target to $65.00 from the previous $182.00. Despite this change, the firm maintained its Outperform rating for the retail giant. The revised price target reflects a cautious but optimistic view of Walmart's prospects amid a challenging consumer environment in 2024.
The company's focus on value and a broad range of products continues to be a key factor in its success. The integration of omnichannel strategies, technology-driven business operations, and automation are expected to contribute to Walmart's growth acceleration.
Following a third-quarter margin setback, Walmart demonstrated a strong rebound with a commendable performance in the fourth quarter and provided guidance for the calendar year 2024 that surpassed initial market apprehensions.
The company forecasts sales growth of 3-4% and operating income growth of 4-6% for the year, which is viewed as both conservative and achievable. There is optimism that as Walmart's capabilities and product mix evolve, and as the company realizes productivity improvements, earnings before interest and taxes (EBIT) growth could potentially reach 8%.
Evercore ISI anticipates that Walmart will expand its margin in the current year, fueled by scaling higher-margin businesses such as media and fulfillment services, as well as the accumulation of automation benefits and a moderation in wage inflation.
The firm has slightly increased its earnings per share (EPS) estimate for the calendar year 2024 to $2.36, with a projection of $2.60 for 2025. The $65 base case price target is based on a 25 times price-to-earnings (P/E) ratio for the calendar year 2025, which represents a 20% premium over the S&P 500 and aligns with Walmart's historical P/E range since 2017.
The analysis also includes a sum-of-the-parts (SOTP) assessment, which suggests that at a stock price of $58, Walmart U.S. is undervalued, trading at less than 19 times P/E despite strong top-line growth and a business inflection point. Additionally, Evercore ISI has ended its negative Tactical Asset Pick (TAP) call, as Walmart's stock performance has been favorable, with a 4% increase compared to the S&P 500's 3% rise.
Evercore ISI continues to include Walmart in its "Fab Five" portfolio, which also features O'Reilly (NASDAQ:ORLY) Automotive, Sherwin-Williams (NYSE:SHW), Kroger (NYSE:KR), and Five Below (NASDAQ:FIVE).
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