Walmart: Retail Juggernaut Has More Room to Grow for Investors

The world’s largest retailer, company, and employer, Walmart Inc. (NYSE: WMT), continues to defy gravity as its stock keeps floating higher, rising 54% year-to-date (YTD). Even after the 3 for 1 stock split on Feb. 26, 2024, shares climbed an additional 52%. The company demonstrates the power of scale as the nation’s largest importer of goods. Walmart is also making headway in China as it gains market share against its incumbent retail leaders. While firing on all cylinders, Walmart continues to grow, indicating more upside.

Walmart operates in the retail/wholesale sector, competing with retailers like Target Co. (NYSE: TGT), Costco Wholesale Co. (NASDAQ: COST) and Amazon.com Inc. (NASDAQ: AMZN).

Defying Gravity As the U.S. Dollar Spikes

In a high interest rate environment, the U.S. dollar tends to stay strong, which hurts companies selling goods and services overseas, as reflected in their earnings reports as FX or currency headwinds. Falling interest rates tend to weaken the dollar, enabling other currencies to have more purchasing power for U.S. goods and services. However, since the Fed's 50 bps interest rate cut, the U.S. dollar index has recovered from a low of $99.866 to surge up to $102.223.

As the nation’s largest importer of goods, Walmart is one of the major companies that has benefited from a strong U.S. dollar. For Walmart, a rising dollar counts as a currency tailwind. Its buying power grows, enabling it to buy more goods overseas for less money (in U.S. dollars). The jump in the U.S. dollar index has pushed Walmart shares back up near its all-time high. The spike in the U.S. dollar is a net positive for Walmart’s gross margins.

Challenging the Incumbents in China

Walmart grew sales in China by 17.7% YoY in its second quarter of 2024. Its Sam's Club warehouse business saw membership income rise by 26% YoY. Nearly 50% of Walmart's sales in China come from its e-commerce and digital sales channels. While Walmart is an American company, it's been successful in locally sourced goods. Its success has been so solid that it's doubling down focus on its China operations as indicated by dumping its investment in JD.com Inc. (NASDAQ: JD), selling its 144.5 million share stake for around $3.7 billion on Aug. 21, 2024, which it's held since 2016. It sold shares for an average of $24.95, a little over a month before JD.com shares nearly doubled in anticipation of China’s stimulus package.

Taking a Page From Amazon Prime Membership Services

Taking a page out of Amazon Prime membership services, Walmart has been growing its Walmart+ membership program. For $12.95 per month or $98 per year, Walmart+ members get free shipping with no minimum orders (like Prime), which includes free grocery delivery. Members get free Paramount Global (NASDAQ: PARA) Paramount+ streaming services with ads and up to 10 cents per gallon discount on gas at Walmart, Sam’s Club, Murphy’s, and Exxon Mobil Inc. (NYSE: XOM).

Walmart+ members get early access to promotions like Black Friday deals, travel benefits, cash-back rewards, and member price discounts on groceries and prescriptions. Members can now get dining benefits at Burger King, owned by Restaurant Brands International Inc. (NYSE: QSR), like 25% off digital orders and a free Whopper every quarter with any purchase. It also has additional discounts and promotions with companies from Peloton Interactive Inc. (NASDAQ: PTON) to NOOM and a 30% discount on home projects at Angi Inc. (NASDAQ: ANGI). 

Walmart Grew Comp Sales 4.2% in Its Second-Quarter of 2024

In its Q2 2024 earnings report, Walmart reported earnings of 67 cents per share, beating consensus analyst estimates by 2 cents. Revenues rose 4.7% YoY to $169.3 billion versus $168.56 billion consensus estimates. Walmart's U.S. comp sales rose an impressive 4.2% YoY. Global advertising grew 26% YoY, including 30% growth for Walmart Connect. Consolidated gross margins rose 43 bps. Walmart+ membership income grew 23% YoY, and Walmart+ memberships rose by double-digits.

Its e-commerce sales rose 22% YoY, driven by store-fulfilled pickup and delivery. Global inventories fell 2% YoY and 2.9% for U.S. Walmart inventory with health in-stock levels. Market shares grew in general merchandise, while transaction counts and unit volume rose across all markets. Grocery sales are strong, and there is no evidence of consumer weakness.

Walmart Raises Full-Year Guidance 

The company expects Q3 2024 EPS between 51 and 52 cents versus 55 cents consensus estimates. Revenues are expected between $166.03 billion and $167.05 billion versus $167.05 billion. Full-year 2024 EPS was raised to $2.35 to $2.43, up from $2.23 to $2.37, versus $2.44 consensus estimates. Full-year 2024 revenue is expected to be between $672.43 billion and $678.91 billion versus the consensus estimates of $676.53 billion.

Walmart CEO Doug McMillan commented, “Our e-commerce progress creates more optionality for our customers and fuels the growth of our newer businesses. Globally, membership income grew 23%. Walmart Plus memberships were up double-digits. And Sam's Club U.S. achieved a record-high member count. Globally, advertising grew 26%, including 30% growth for Walmart Connect in the U.S. Advertising sales driven by marketplace sellers were up nearly 50%.”

WMT Stock Forms an Ascending Triangle Pattern

An ascending triangle pattern is comprised of a flat-top upper trendline resistance conversing with an ascending lower trendline meeting at the apex point. A breakout forms when the stock rises through the upper trendline, and a breakdown forms if the stock collapses through the lower trendline.

WMT gapped to $72.78 on its strong earning report and rose to a flat top resistance at $81.53. The ascending lower trendline formed at $77.89 and has continued to increase due to higher lows on pullbacks. The daily anchored VWAP support is at $78.06.The daily RSI has been choppy sideways at the 63-band. Fibonacci(Fib) pullback support levels are at $79.12, $74.75, $71.29, and $68.57.

Walmart’s average consensus price target is $81.62, and its highest analyst price target sits at $98.00. It has 29 analysts' Buy ratings and one Hold rating. The stock trades at 33.17x forward earnings.

Actionable Options Strategies: Bullish investors can consider using cash-secured puts to buy WMT at the fib pullback support levels for entry and write covered calls to execute a wheel strategy for income in addition to the 1.03% annual dividend yield.

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