In a recent report, the 5-star analyst lists a host of reasons why he believes “WMT’s dominant industry position and incredibly efficient operating model remain fully reflected in its current share price, leaving little opportunity for significant share price outperformance.”
Speaking to Walmart’s position as retail’s undisputed leader, in addition to its “expanding retail footprint,” the company’s recent sales growth has been driven by strong e-commerce sales. However, Feinseth argues these are “very low-margin online and international grocery sales.” Additionally, despite COVID-19 pushing consumers to load up on “core staple items” offered by Walmart, the analyst expects increased competition “from every other area of retail that will further pressure its gross margins and growth rates.”
Nevertheless, there are several positives to the Walmart story. The focus on e-commerce initiatives indicates a willingness to adapt to a constantly changing retail environment. Add in a “booming online grocery business,” an expansion of its delivery services, a product portfolio enhanced by acquisitions and partnerships, and a move into subscription-based video streaming and entertainment services, amongst other initiatives, and the result is an operating model with “omnichannel capabilities.”
However, Feinseth cites its “product mix that is 55% low-growth, low-margin food and consumer staples,” and competition from Amazon and other innovative competitors as “growing headwinds to acceleration in Business Performance trends.”
And even though Feinseth concedes WMT has done well by luring nontraditional customers to its online shopping platform, he thinks these are probably consumers who have yet to sign up for an Amazon Prime Membership “because if they did, they would most likely continue to shop at Amazon.” Ouch.
Accordingly, Feinseth reiterated a Hold rating on WMT shares, without suggesting a price target. (To watch Feinseth’s track record, click here)
Overall, Feinseth’s view is not one shared by most of his colleagues. 5 additional Holds are countered by 19 Buys, all coalescing into a Strong Buy consensus rating. However, the Street projects a modest upside potential of 8%, as indicated by the $140.25 average price target. (See Walmart stock analysis on TipRanks)
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