There are few companies that thrive even amid challenging conditions because of the strength of their business models and their ability to quickly adapt to evolving consumer needs. Amazon disrupted the conventional retail market with its e-commerce model and has time and again proved its mettle by enhancing its offerings and expanding into new avenues. Its dominance has caused several brick-and-mortar retailers to go bankrupt over the past few years, with it continuing to grab market share.
That said, Walmart has been able to compete with Amazon thanks to its aggressive moves to grow its online presence and enhance its omnichannel capabilities, which help leverage its massive store footprint. Both Amazon and Walmart have outperformed the broader market this year and boast a Strong Buy analyst consensus from the Street.
But which one is a better pick now? We’ll discuss each company’s growth initiatives and use the TipRanks Stock Comparison tool to choose the stock that offers better growth potential.
Amazon is not only the global e-commerce leader but it also ranks No. 1 in the cloud infrastructure market through its high-margin Amazon Web Services or AWS business. That said, the company is not getting complacent and continues to pursue new growth opportunities and upgrade its existing products and services.
The company rapidly expanded in the grocery space with its 2017 acquisition of Whole Foods Market. In August, Amazon announced the launch of its first Amazon Fresh grocery store, which offers several attractive shopping experiences including the Amazon Dash Cart, which enables customers to skip the checkout line.
Amazon is eyeing expansion in the pharmacy market and has recently launched Amazon Pharmacy, a delivery service in the US for prescription medications. Through this new service, Amazon Prime members can get up to an 80% discount on generic drugs and up to a 40% discount on brand name medications when they pay without insurance.
Discussing a recent survey of about 330 consumers on shopping habits and upcoming plans, Needham analyst Laura Martin, an Amazon bull, stated, “1) 80% of the respondents stated that they’d shop the same or more online post-pandemic, with AMZN a clear beneficiary; 2) ~44% of survey respondents stated that 50%-100% of their holiday shopping is already finished, implying that Amazon’s Prime Day pulled forward shopping calendars and spending; 3) 85% of those surveyed stated they’d shop as much or more on AMZN after the pandemic ends, with about 50% saying they prefer AMZN because it sells everything; and, 4) Only 24% of respondents said they’d return to offline retail stores on the other side of the pandemic.”
Martin believes that Amazon’s Services segment revenue and margins (including advertising and subscription) are growing faster than its e-commerce assets, which implies “valuation multiple expansion over time.” The analyst also highlighted that Amazon has an impressive 15-year track record of turning its growth investments into new businesses with high ROIs (Return on Investment), such as AWS and advertising. (See AMZN stock analysis on TipRanks)
Almost everyone on the Street mirrors Martin’s bullish sentiment. 36 Buys and just 1 Hold add up to a Strong Buy analyst consensus. Shares have risen 72.4% since the start of this year. The average price target stands at $3,818.46, implying an upside potential of about 20% from current levels.
Retail behemoth Walmart serves over 265 million customers in 26 countries through its extensive network of 11,400 stores and online channels. The company has been using all of its might to counter the intense competition from Amazon.
As an answer to Amazon Prime, Walmart launched its $98 per year Walmart+ membership program in September. Walmart+ entails benefits like unlimited free delivery, Scan & Go checkout facility in stores and discounts on fuel. The company is also testing various solutions to ensure faster delivery of orders. It has partnered with Zipline, Flytrex and DroneUp for drone delivery pilots in the US. Plus, it has teamed up with Door Dash to deliver prescriptions from Sam’s Club pharmacies.
While maintaining its dominance in groceries and essentials, Walmart is also focusing on other merchandise categories to drive more sales. It launched an in-house clothing line for men and women called Free Assembly this September. What’s more, the company is expanding in the lucrative pet care space via the new Walmart Pet Care omnichannel offering, which includes insurance product PetPlan and pet sitting and dog walking services.
The retailer is streamlining its business by exiting markets like the UK, Argentina, and Japan and focusing on higher growth countries like China, India, Mexico, and Canada. (See WMT stock analysis on TipRanks)
On Nov. 17, Oppenheimer’s Rupesh Parikh reiterated a Buy rating with a price target of $165, saying, “We believe WMT shares are still positioned for outperformance, but see more of a grind higher from here. Ongoing benefits from WMT’s e-commerce investments, tailwinds from continued increases in at-home food consumption, and retailer liquidations suggest the potential for market share gains to persist. In addition, we look favorably upon the strong underlying cash generation, and the potential for more aggressive return of capital to shareholders in coming years.”
The majority of analysts on the Street share Parikh’s optimism. Walmart scores a Strong Buy analyst consensus based on 20 Buys and 6 Holds. With Walmart shares advancing 27.8% year-to-date, the $160.98 average price target indicates an upside potential of 6% over the coming months.
Walmart also rewards its shareholders with a quarterly dividend of $0.54 and has a dividend yield of 1.44%.
Amazon is trading at a higher valuation than Walmart. However, analysts believe that the growth prospects of Amazon’s e-commerce and AWS businesses support its premium valuation. The Street is bullish about both Walmart and Amazon over the long-term, but the higher upside potential in the stock makes Amazon a more favorable pick right now.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment