Investment thesis
In August 27th, 2020, we suggested a hold recommendation for Walmart stock, with a 12-month target price of $139.9 vs $131.65 traded in August 27th, especially because Walmart is characterized by many positive characteristics, such as the ability to acquire new customers, efficient logistics support, omni-channel solutions, integrating e-commerce, on-stores activities etc.
Today, on the 15th of March 2021, we still confirm this investment thesis to hold the Walmart stock. Indeed, as shown in the graph on the right, the market price performance from August 2020 to today has been characterized by a positive increasing trend, on average, with some peaks in September and December 2020 and some drops especially in the end of February 2021. This implies that one investor that bought the Walmart stock in August 27th, 2020, he could have sold it during the peaks identified or he could still hold the stock until it gets the target value.
The choice to still hold Walmart stock depends on some specific events occurred during the last eight months and the new updated forecasts made by investment analysts.
Walmart’s recent news updates
New business strategies
Firstly, it is important to underline that Walmart announced a reinvented Black Friday shopping experience named “Black Friday Deals for Days”, in order to increase sales. Then it introduced Walmart +, which is a new membership offering with some benefits such as the unlimited free delivery, Scan & Go checkout in stores and discounts on fuel. Then, during this period Walmart hosted first-ever virtual Open Call Event for US-manufactured products, such that almost 175 small businesses found an opportunity with Walmart. It also announced new drone delivery pilots in the U.S. with Zipline, Flytrex and DroneUp, as well as a pilot with Cruise, that is an all-electric selfdriving car company, to test grocery delivery. During this period, Walmart opened three new Walmart Health Centers in Newnan, GA, Cartersville, GA and McDonough, GA, in order to increase its presence in the market.
Regarding its brands, Walmart launched Free Assembly, a modern fashion brand for women and men, and Eloquii Elements, a new private brand of everyday fashion for women. The firm also announced the initial rollout of a new store design in the U.S. focused on a digitally-enabled shopping experience. Then, Walmart introduced the first selfcheckout stations for Sam’s Club in Mexico, as well as a team-based operating model in U.S. supercenters to better serve customers and provide associates with more room for career and pay growth.
Diversification
In order to diversify its business, the company launched Walmart Insurance Services, LLC, a licensed insurance brokerage, which provide support to its clients with enrolling in insurance plans.
Partnerships
As to the partnerships and collaboration, Walmart stipulated a collaboration with Sam’s Club and 98point6, a virtual primary care provider, for exclusive telehealth offerings via text-based app, and a partnership with Door Dash to deliver prescriptions from Sam’s Club pharmacies, by favouring the expansion of Scan & Go to all Sam’s Club U.S. fuel stations It also announced a strategic partnership with Flipkart and Aditya Birla Fashion and Retail to enhance the consumer fashion experience in India. Walmart also partnered with Goldman Sachs to offer online marketplace sellers access to capital.
Investments
Walmart announced the agreement to sell as follows: firstly Asda, Walmart’s subsidiary in the U.K. to the Issa brothers and TDR Capital, then the company’s business in Argentina to Grupo de Narvaez and lastly a majority interest in Seiyu, Walmart’s subsidiary in Japan, to KKR and Rakuten. It also announced additional investment in Ninjacart, India’s innovative startup for supply chain and technology solutions. To this extent, the firm also announced the acquisition of the intellectual property of mobile gaming startup, Mech Mocha, by Flipkart.
CSR
Regarding its CSR policies, Walmart sets its ambitious goals targeting zero emissions in its operations by 2040, including harvesting enough wind, solar and other energy sources to power the company’s own facilities with 100% renewable energy by 2035. Walmart was also named as one of this year’s Forbes JUST 100, a list of companies that strive to benefit all of its stakeholders.
Fourth-quarter 2020 & Fiscal 2021 highlights
From a financial perspective, in accordance with Walmart Q4 and FY21 estimations, the annual revenues are about $560 billion, resulted in $35 billion of growth. Specifically, Walmart US Q4 sales grew by 8.6% and Walmart US eCommerce sales grew by 69%.
Walmart adjusted earning-per-share was around $1.39, even though the decision to repay property tax relief in the U.K. lowered GAAP earning-per-share and adjusted earning-per-share by $0.07. Also, the costs related to Coronavirus were $1.1 billion in Q4.
As to the business, Walmart continues to improve the next generation business model, by make several investments in automation to fuel future sales and earnings growth.
FY22 capital investments are expected to be around $14 billion to build supply chain capacity and automation to stay ahead of demand, improve the customer experience and increase productivity.
The firm will also invest in US wages, by increasing the associate average to a level greater than $15 per hour.
Regarding the projections for the FY22, net sales, operating income and earning-per-share are expected to decline, especially because of the impact of anticipated divestitures. However, without considering the effect of divestitures, net sales are expected to grow up very slowly, with operating income and earning-per-share expected to be flat.
Walmart increased its dividend amount for the 48th consecutive year and approved an additional $20 billion share repurchase program.
Author: Cesare Campisi
Contact: cesare.campisi@hec.edu
Date: 30-March-2020