The once-dominant home goods chain Bed Bath & Beyond Inc. (BBBY) filed for bankruptcy protection last month, following months of desperate measures to come up with enough money to stay afloat. BBBY’s collapse will likely benefit various industry players, including Walmart Inc. (WMT).
WMT’s diversified business model, competitive pricing, and rising online presence position the company to grow strongly this year and beyond. Hence, investors could consider scooping up shares of this top big-box retailer now. In this piece, I have discussed several reasons why I am bullish on WMT.
After several last-ditch efforts to raise enough money to save the business, the beleaguered home goods retailer BBBY filed for bankruptcy protection on April 23 and has begun a liquidation sale.
BBBY’s 360 Bed Bath & Beyond and 120 buybuy BABY stores and websites will remain open and continue serving customers as the company commences to close the business and liquidates assets. To fund operations through the bankruptcy process, the company has obtained a commitment of nearly $240 million in debtor-in-possession financing from Sixth Street Specialty Lending, Inc.
The world’s largest retail company WMT, with a $412.18 billion market cap, stands to benefit significantly from BBBY’s downfall. The company is poised to score a fresh crop of customers, thereby boosting its profitability and growth. Over the years, WMT has earned customers’ trust by providing a broad assortment of quality merchandise and services at everyday low prices (EDLP).
The retailer allows its customers to shop in both retail stores and through eCommerce, and with industry-leading innovation, it strives to improve the customer-centric experience continuously. WMT operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club.
For the full-year 2023, WMT’s total revenue increased 6.7% year-over-year to $611.30 billion. The company delivered solid revenue growth globally with strength in stores and eCommerce. Its net sales from the Walmart U.S. segment grew 6.9% from the year-ago value to $420.60 million, while net sales from the Sam’s Club segment rose 14.7% year-over-year to $84.30 million.
In addition, WMT’s global advertising business increased by approximately 30% to reach $2.70 billion, primarily led by Walmart Connect in the U.S. and Flipkart Ads. During the year, the company generated $29.10 billion in operating cash flow and returned $16 billion to shareholders through dividends and share repurchases.
On February 21, WMT raised its annual dividend for the fiscal year 2024 to $2.28 per share, an increase of 2% from the last fiscal year. “Dividends continue to be a part of our diversified capital returns approach. We’re proud to be increasing our annual dividend for the 50th consecutive year, a milestone for our company,” said John David Rainey, WMT’s executive vice president and chief financial officer.
WMT’s four-year average dividend yield is 1.65%, and its annual dividend of $2.28 yields 1.49% at current prices. The company’s dividend payouts have increased at CAGRs of 1.8% over the past three years and 1.9% over the past five years.
The stock has gained 7.2% over the past six months to close the last trading session at $152.55.
Here is what could influence WMT’s performance in the upcoming months:
Positive Recent Developments
On April 26, Walmart Health announced expansion into Oklahoma by opening four new health centers in 2024, in addition to Missouri and Arizona, and deepening its presence in Texas. Walmart Health intends to help Walmart customers live better by offering convenient access to affordable, high-quality healthcare services. This expansion might drive WMT’s growth.
On January 12, Walmart Commerce Technologies and Walmart GoLocal announced a partnership with Salesforce.com Inc. (CRM) to give retailers access to the tools and services that enable frictionless local pickup and delivery for customers globally. This partnership will allow WMT to be more assessable to customers.
On January 5, WMT announced that it had successfully operated 36 drone delivery hubs across seven states, including Arizona, Arkansas, Florida, North Carolina, Texas, Utah, and Virginia. Over the past year, Walmart has safely completed more than 6,000 deliveries to customers in as little as 30 minutes.
WMT is uniquely positioned to offer drone delivery at scale, with its 4,700 stores located within 90% of the U.S. population, which might benefit the company significantly.
Solid Financials
WMT’s total revenue increased 7.3% year-over-year to $164.05 billion in the fourth quarter that ended January 31, 2023. Its adjusted operating income grew 6.3% from the year-ago value to $6.37 billion. In addition, consolidated net income attributable to Walmart rose 76.2% year-over-year to $6.28 billion, and its adjusted EPS came in at $1.71, an increase of 11.8% year-over-year.
Favorable Analyst Estimates
Analysts expect WMT’s revenue for the fiscal 2024 first quarter (ending April 2023) to come in at $147.66 billion, indicating an increase of 5.3% year-over-year. The consensus EPS estimate of $1.39 for the ongoing quarter indicates a marginal year-over-year increase. Also, the company has topped the consensus revenue estimates in each of the trailing four quarters, which is impressive.
Furthermore, the company’s revenue and EPS for the current fiscal year (ending January 2024) are expected to grow 3.7% and 11.2% from the previous year to $651.40 billion and $6.81, respectively.
High Profitability
WMT’s trailing-12-month ROCE, ROTC, and ROTA of 14.60%, 10.38%, and 4.80% compare to the industry averages of 10.37%, 6.33%, and 4.24%, respectively. Likewise, the stock’s trailing-12-month asset turnover ratio of 2.50x is 177.5% higher than the 0.90x industry average.
POWR Ratings Show Promise
WMT has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. WMT has a grade of A for Sentiment and B for Growth, in sync with robust financials and favorable analyst expectations. Also, it has an A grade for Stability, consistent with its 24-month beta of 0.65.
WMT is ranked #2 out of 37 stocks in the A-rated Grocery/Big Box Retailers industry.
Beyond what I have stated above, we have also given WMT grades for Value, Momentum, and Quality. Get access to all WMT ratings here.
Bottom Line
For the fiscal year 2023, retail giant WMT added $38 billion in net sales globally and surpassed $600 billion in revenue for the first time in the company’s history. Furthermore, the retailer is well-placed to maintain its business momentum this year and beyond, driven by its diversified business model, competitive pricing, and growing online presence.
Moreover, WMT stands to benefit from BBBY’s bankruptcy by absorbing its market share. Given WMT’s financial strength, bright growth prospects, and reliable dividends, it could be wise to invest in this stock now.
How Does Walmart Inc. (WMT) Stack up Against Its Peers?
WMT has an overall POWR Rating of A. One could also check out these other stocks within the Grocery/Big Box Retailers industry with an A (Strong Buy) rating: Carrefour SA (CRRFY), Albertsons Companies, Inc. (ACI), and PriceSmart, Inc. (PSMT).
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WMT shares were trading at $152.19 per share on Thursday morning, down $0.36 (-0.24%). Year-to-date, WMT has gained 8.18%, versus a 7.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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