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Walmart Stock

Walmart: Analyzing Walmart+ And Its Progress

consumer discretionary investing strategies Jun 07, 2021

 Price Target: $160

Current Price: $140

Target Date: 6-9 Months

Rating: Overweight

Ticker: WMT




Something we've been preaching now for the last few months is the seismic shift from growth stocks to value stocks. With inflation being a fear, super growth heavy stocks have really taken a hit as their future cash flows become worth less and less in today's dollars due to a concept called time value of money (more on that below). While this evident shift happening, as investors, we need to rethink the types of stocks we make investments into. Therefore, we've been recommending value based stocks, like Walmart, as a prime example of stocks that will outperform in market conditions like this. Walmart has been and continues to be an extremely strong company that has continued to innovate even against a tough competitive backdrop. With a strong dividend and price appreciation potential, Walmart is a strong pick during these choppy times. Let's break it down further:



Last we wrote about Walmart we touched upon their new service line, Walmart+. Walmart+ is holding steady around 10M members (think of this similar to Amazon prime). While many may be surprised by this as growth has been somewhat stagnant, we think this was to be expected as WMT has always focused on optimizing the consumer experience rather than just growing the membership base at all costs.Walmart has made it their stated purpose to deliver on the value of their program by increasing the efficiences of their logistics business, supply chain, etc. Because of this the feedback from their less than a year old program has been driving strong feedback and overall results. Once this is "perfected" we are anticipating a large scale roll out of Walmart+ giving them a strong ability to start "competing" with the likes of Amazon. While many people would find this surprising, Walmart has a strong history of execution and we believe this service line is no different. When projecting out the value of this service line and creating a sum of the parts analysis (aka valuing this in isolation relative to the rest of the firm), we believe this should add in an additional $10 to the stock price from this service line alone!



When factoring the above into the already strong business model of Walmart, we see a new way for them to grow - which is extremely important as an investor to look for. This is what makes them so attractive! In today's environment, while value is important, we can search for growth if it comes at a reasonable price (aka a reasonable valuation). In Walmart's example we see that their stock is actually trading at discount to their overall value (revenues are $559B while the market cap is $392B). When comparing this to Amazon we see that their valuation is roughly 4x their annual revenue ($1.64T Market Cap vs. $400B in Annual Revenue). What does this tell us? That they're trading at a major discount! While their growth across their business is not as significant as Amazon's, the gap between the two is too wide given the valuation difference. Therefore when creating our financial modes, comparing it to the market and deriving the difference, we see Walmart's stock is undervalued, making us continued buyers and holders of the stock! Using these techniques, we value Walmart's stock to rise to $160 with more upside coming should Walmart+ outperform in the the near term!


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