Let’s be honest. When investors talk about retail stocks, Walmart Inc. (NYSE:WMT) isn’t usually thought of as a “sexy” name. The fact that WMT is the largest U.S. retailer by sales and the largest non-government employer in the country doesn’t seem to excite most investors much.
“Sexy” in the retail space is usually reserved for growth companies residing in the consumer discretionary space, such as Amazon (NASDAQ:AMZN), Shopify (NYSE:SHOP) and other companies with significant e-commerce exposure. Growth is not usually a label given to Walmart stock. Arkansas-based Walmart is a member of the Dow Jones Industrial Average, a steady dividend payer and a member of the consumer staples sector, one of the least sexy groups on the market.
But whether Walmart stock is glitzy or not, there’s no getting around the fact that Walmart stock price is up more than 21% in 2019, putting it ahead of the S&P 500 Consumer Staples Index by about four percentage points. Despite WMT’s struggles in the online retail space, a situation the company is working to ameliorate, Walmart isn’t going anywhere. If anything, the company and WMT stock are likely to benefit as so many other bricks-and-mortar retailers fall by the wayside.
“As for Walmart, it too looks poised to continue to benefit from the closure of other retailers, especially given that its huge network of stores makes it an obvious alternative for shoppers who find competitors’ doors shuttered,” according to Barron’s.
Getting It Right Online
When it comes to Walmart stock, the company’s online efforts represent a good news/bad news scenario. An obvious part of the bad news is that no one is going to confuse Walmart with Amazon anytime soon. The next bit of bad news is that the company’s online operations lose money.
“The business continues to be in the red, with losses expected this year of about $1.7 billion, up from $1.4 billion last year, according to Morgan Stanley estimates,” reports Bloomberg.
The good news is that Walmart is a $322 billion company, so a loss of $1.7 billion, even if it occurs every year, isn’t a game changer. Plus, losing money in online retail for awhile is not a big deal. Ask Amazon. That company did it for years. Importantly, Walmart’s online business is growing, reportedly by 40% last year.
“We believe Walmart is well positioned to capitalize on the digitizing retail landscape,” said research firm Morningstar in a recent note. “While the ship to home channel draws the most attention, we expect the future of retail is omnichannel, with consumers expecting a menu of fulfillment options (home delivery, click-and-collect, and traditional in-store purchases) and making different choices dependent on preference, the immediacy of the need, and the nature of the item.”
Additionally, Walmart has distribution advantages that would make it the envy of most e-commerce companies, perhaps even Amazon. The “last mile” — getting the package from the warehouse to customers’ doorsteps — is a concept Amazon spends billions trying to refine, but the company is still heavily dependent on relationships with traditional shipping companies.
Conversely, Walmart long ago nailed the concept of getting goods from warehouses to stores, indicating it may have core competency in the last mile that the owners of Walmart stock may not be fully appreciating.
“Walmart should be able to use its procurement and distribution scale, store network, and digital investments to protect returns,” according to Morningstar. “Its move to complementary next-day shipping, as well as expansion of grocery pickup and same-day delivery (now at 2,450 and 1,000 U.S. stores, respectively), should leave it in good stead.”
The Bottom Line on Walmart Stock
Typically, investors embrace Walmart stock as a volatility reducer and a dividend play (the shares yield just 1.86% but Walmart stock has a steady history of payout growth). The company had $18.29 billion in free cash flow at the end of last year, a point that’s rarely raised when pundits talk about WMT stock.
So obviously, Walmart has a strong balance sheet. Second, it has room to buyback Walmart stock and raise its dividends. And it can make acquisitions to shore up its online business. Finally, a case can be made that, given the growth of the company’s online business, Walmart stock, viewed as a value stock, has growth-like traits.
As of this writing, Todd Shriber did not own any of the aforementioned securities.