Walmart stock is rising on Wednesday, helped by a bullish recommendation from Citigroup, which argues that the retailing giant may be the best bet in the sector.
The back story.
While other retailers have languished, Walmart (ticker: WMT) is up more than 25% year to date, outpacing the S&P 500 ’s nearly 20% gain. In August, the company reported an upbeat quarter, and plenty of analysts see its size as a guard against the worst effects of the trade war.
The company is also branching out into new areas, like health care. Its recent decision to stop selling some ammunition could help it attract more investors, and its reputation for low prices continues to resonate with consumers.
On Wednesday, Citi analyst Gregory Badishkanian reiterated a Buy rating and $135 price target on Walmart after assuming coverage of the stock. He writes that Walmart is his top pick in his coverage, as “the combination of their scale (90% of U.S. consumers within 10 miles of a Walmart) coupled with their investments in omnichannel offerings, and store productivity should offset concerns about returns on its longer-term international investments and associated dilution.”
In addition, while the shares’ recent rally means they now trade at a premium, Badishkanian says this is justified given Walmart’s growth potential. He also likes the company’s focus on value, its expanding grocery division, and productivity initiatives that should drive improved sales and margins.
Walmart’s dominance is a natural consequence of the current retail dynamic in the U.S., Badishkanian writes. Players that have the ability to invest in omnichannel solutions are best positioned to grab market share, and chains that are still driving traffic (despite concerns that there are still too many stores) are more likely to show sustainable long-term growth, he argues. Private labels are another important growth component—and Walmart is increasing its efforts there.
Moreover, while U.S. consumers are still willing to spend for now, Badishkanian writes that Walmart is more defensive in the event of a recession. It also derives some recurring membership fees from its wholesale Sam’s Club.
Walmart is up 0.5%, at $117.05, in recent trading.
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