10 reasons why investors should buy the dip in Walmart, which has 31% upside potential, according to BofA

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  • Walmart’s 6% decline on Thursday presents investors with an attractive buying opportunity for investors, Bank of America said in a note on Friday.
  • The bank raised its price target on the retailer to $180, representing upside potential of 31% from Thursday’s close.
  • Detailed below are the top 10 reasons why investors should buy Walmart, according to Bank of America.
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Walmart fell 6% on Thursday after its fourth quarter earnings report and longer-term guidance failed to beat analyst expectations.

But Bank of America says the sell-off represents an attractive opportunity for investors to buy the dip in shares of Walmart, according to a Friday note.

The bank reiterated its buy rating on the retailer and increased its price target to $180 fro $175, representing potential upside of 31% from Thursday’s close. 

Detailed below are the top 10 reasons why investors should buy the dip in Walmart, according to Bank of America.

1. “Walmart now positioning to accelerate to 4%+ sustained sales growth.”

General merchandise demand has been strong and digital growth was almost 3x pre-COVID expectations, BofA highlighted. “Walmart had the most downloaded US shopping app and 13 of its general merchandise brands did over $1 billion in sales,” BofA said. 

2. “Omni-channel convenience investments are widening the moat vs. the competition.”

“Walmart is aggressively investing in capacity and automation to drive speeds and profitability in stores, pick-up, and delivery. Walmart expects delivery costs to go down as the company builds volume and intensity,” BofA said.

3. “Walmart sees $100 billion of global ecommerce revenue in next few year.”

“Pickup and delivery, especially when combined with a membership model, should be very ‘sticky’ and support long-term share gains for Walmart,” BofA said. 

4. “Gross margin is now expected to go up over the foreseeable future.”

Walmart will drive faster growth of higher margin general merchandise sales, should experience less pressure from price investments, and higher margin revenue streams like advertising and fulfillment are “growing rapidly,” BofA said.

5. “Walmart expects to deliver sustainable expense leverage going forward.”

“We still believe the lapping of $4 billion in COVID costs could help offset wage pressures and support upside to guidance,” BofA said. 

6. “Wage increases for lower-income consumers in 2021 could also be a top-line tailwind for Walmart.”

“Wage inflation is generally good for Walmart given store associates typically shop the stores,” BofA said. 

7. “Walmart now has a rapidly growing digital ad business expected to reach $2 billion in the very near future.”

“Walmart Connect” is the retailer’s ad platform that is expected to become a top 10 advertising platform over the next 5 years, surpassing large players including Twitter, according to the note. “Walmart is also in early stages of a data monetization opportunity,” BofA said. 

8. “Walmart will ‘seem like a service’ business as the company moves further into Healthcare and Financial Services.”

Walmart’s move into insurance and fintech will help the retailer reach new customers, especially through its Walmart+ membership service, BofA said. 

9. “Sam’s Club could be a stronger profit contributor going forward.”

Recent initiatives in optimizing its buying and merchandising operations, enhanced inventory management tools, and enhanced labor and supply chain efficiency have gained traction, BofA highlighted. The bulk wholesaler has also seen “strong momentum” in its curbside pickup, the note said.

10. “Walmart International is positioning to drive upside in F23 and beyond.” 

The upside will be driven by strength in Walmart’s Mexico business (Walmex), the anniversary of its divestitures in the UK, Japan and Argentina, growth in its China Sam’s Club business, and monetization opportunities in India through Flipkart and PhonePe, BofA said.