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Discount retailer Walmart Inc. is well positioned for the current macroeconomic environment in which discretionary spending is coming under pressure, analysts say.
Walmart
WMT,
which reported better-than-expected fiscal first-quarter results and raised its outlook Thursday, echoed comments from rival Target Corp.
TGT,
about discretionary spending during a conference call Thursday to discuss those results.
“Like their competitor, [Walmart] did see slowing trends throughout the quarter, which is leading to a [second-quarter] guide that is just below consensus,” D.A. Davidson analyst Michael Baker wrote in a note released Thursday. “On balance however, we see the report as favorable and in line with our view that [Walmart] is a name to own in the current economic environment and think the stock should rally on the news.”
D.A. Davidson had a buy rating and $178.07 price target for Walmart.
While Walmart noted discretionary-spending pressure, the company said it is gaining share in the grocery segment, including among higher-income households.
Market-share gains in grocery helped Walmart beat expectations for U.S. same-store sales, according to Jefferies analyst Corey Tarlowe. Strength in food and consumables also helped Walmart division Sam’s Club beat same-store-sales expectations, the analyst added.
Set against this backdrop, Walmart remains one of analyst firm Jefferies’ top picks. “[Walmart] demonstrated strong [first-quarter] results across the board,” Tarlowe wrote in a note released Thursday. “With strong traffic trends, and growing e-[commerce] and private brand penetration, we believe [Walmart is] well-positioned to gain share ahead.”
Jefferies had a buy rating and $175 price target for Walmart.
Independent equity-research firm New Constructs believes that Walmart is an important bellwether for consumer spending. “Walmart’s better-than-expected earnings show that it’s one of the best businesses in the world and we view Walmart as a very resilient stock, even in the face of inflation and slowing economic growth,” New Constructs CEO David Trainer said in a statement emailed to MarketWatch. “Consumer spending is shifting right now and moving away from pricier goods with a renewed focus on staples, where Walmart’s lower-cost offerings are attractive.”
Of 40 analysts surveyed by FactSet, 31 had an overweight or buy rating and nine had a hold rating for Walmart.
Related: ‘Cleaner’ Target enjoying margin recovery, analysts say
Like many retailers, Walmart faced an inventory glut in 2022, but the company has been tackling the problem, according to CEO Doug McMillon. “We made progress with inventory levels,” he said during the Thursday conference call, adding that excess inventory “keeps coming down.”
Walmart’s U.S. inventory declined 9% with higher in-stock levels, the company said in its earnings release.
The company’s stock rose 1.1% Thursday, compared with the S&P 500’s
SPX,
gain of 0.3%.
