Thematic evaluation
Back to company overview

Walmart, Inc. (WMT)

September 18, 2024

Compared to: Costco Wholesale Corp. (COST) | Target Corp. (TGT) | Consumer Discretionary Select Sector SPDR Fund (XLY)

Our reasoning

Walmart appears slightly undervalued based on its strong financial performance, market leadership position, and growth prospects in e-commerce and new services. The company's valuation multiples are in line with or slightly below historical averages and industry peers, despite its above-average returns on capital and consistent growth. However, potential risks, particularly legal and regulatory challenges, temper the degree of undervaluation.

Key takeaways
  • Walmart is a financially strong company with a solid track record of growth and profitability.
  • The company is effectively navigating a challenging macroeconomic environment and is well-positioned for continued growth.
  • Walmart's investments in technology and supply chain automation are key drivers of its future success.
  • The company's strong cash flow generation provides financial flexibility for debt repayment, dividend growth, and investments in organic growth opportunities.
  • Walmart faces substantial legal and regulatory risks, particularly around opioid-related litigation and investigations, which could impact its financial performance and reputation.
  • The company's valuation is generally in line with its peers, suggesting that it is fairly valued.
  • Walmart's stock price has generally outperformed the benchmark and Target, but has underperformed Costco.
  • The company's future prospects are positive, with continued growth in its core business and investments in strategic initiatives.
Undervalued
Ask a question about Walmart, Inc. (WMT)
Evaluation summary

  1. Company Overview:

    • Walmart is a global retail giant operating in three segments: Walmart U.S., Walmart International, and Sam's Club. The company's business model revolves around offering a wide assortment of merchandise and services at everyday low prices, targeting a broad customer base across various income levels and demographics.
    • Walmart's revenue is primarily generated from the sale of grocery, general merchandise, health and wellness products, and services. The company's revenue breakdown reflects the significant contribution of its grocery segment, followed by general merchandise and its growing e-commerce and omni-channel offerings.
    • Walmart's target market encompasses a diverse range of consumers, including families, individuals, and businesses. The company caters to a wide range of needs, from everyday essentials to discretionary purchases.
    • For comparative analysis, we will be using the Consumer Discretionary Select Sector SPDR Fund (XLY) as a benchmark and Target Corp. (TGT) and Costco Wholesale Corp. (COST) as industry peers.

  2. Financial Performance:

    • Walmart has demonstrated consistent revenue growth over the past few years, driven by strong performance in food and consumables, improvements in general merchandise, and continued momentum in e-commerce and newer business initiatives like advertising and membership programs.
    • The company's profitability is strong, with a return on average assets of 6.1%, return on average total equity of 18.97%, return on average total capital of 18.67%, and return on average invested capital of 11.37%. These ratios are all significantly higher than the industry average, indicating that Walmart is more efficient at generating profits from its assets and investments.
    • Walmart's profitability is improving, with all of these ratios showing an increasing trend over the past four quarters. This suggests that Walmart is becoming more efficient at managing its costs and generating profits.
    • Compared to its peers, Walmart has generally outperformed Target in terms of profitability metrics, but has lagged behind Costco. This suggests that Walmart is a financially healthy company, but it may need to focus on further improving its efficiency and maximizing returns to keep pace with Costco's strong performance.

  3. Operational Efficiency:

    • Walmart's balance sheet reflects a strong financial position with a healthy level of cash and short-term investments, although this has been decreasing in recent quarters.
    • The company's working capital management is generally efficient, but there are some areas for improvement, particularly in managing accounts receivable and inventory levels.
    • Walmart's cash flow generation is strong, with a healthy level of operating cash flow and robust free cash flow generation. The company's free cash flow margin is increasing, indicating that it is becoming more efficient at generating cash from its operations.
    • Walmart's asset quality is generally good, with a low level of goodwill and intangibles relative to its total assets.
    • The company's capital expenditures are aligned with its strategic initiatives to enhance its digital capabilities, supply chain, and store/club network.
    • Walmart's dividend and share repurchase program is sustainable, supported by its strong cash flow generation and conservative capital structure.
    • Compared to its peers, Walmart has a lower debt-to-equity ratio and leverage ratio than Target, indicating a more conservative capital structure. However, Costco has a lower debt-to-equity ratio and leverage ratio than Walmart, suggesting that Costco is even more financially stable.

  4. Growth Opportunities:

    • Walmart is pursuing a multi-pronged growth strategy, including expanding its geographic footprint, investing in e-commerce and digital capabilities, and developing new business initiatives like advertising and membership programs.
    • The company has a strong track record of successful acquisitions, and it continues to explore opportunities to expand its reach and product offerings.
    • Walmart is investing heavily in research and development, particularly in areas like artificial intelligence and supply chain automation.
    • The company's strategic focus areas include enhancing the customer experience, improving operational efficiency, and expanding its digital capabilities.
    • Walmart's capital allocation strategy is balanced, with a focus on both organic growth and shareholder returns.
    • Management has a history of successfully executing strategic plans, as evidenced by the company's consistent growth and profitability.

  5. Risks and Threats:

    • Walmart faces a number of risks, including intense competition, macroeconomic volatility, regulatory changes, and legal challenges.
    • The company's competitive landscape is highly dynamic, with traditional and emerging players vying for market share.
    • Macroeconomic factors like inflation, supply chain disruptions, and changing consumer behaviors can impact Walmart's profitability and growth prospects.
    • Regulatory changes, particularly around data privacy, cybersecurity, and labor laws, can create compliance challenges and increase costs.
    • Walmart is facing substantial legal and regulatory risks, particularly around opioid-related litigation and investigations, which could result in material liabilities and reputational damage.

  6. Valuation Analysis:

    • Walmart's valuation metrics, such as its P/E ratio and EV/EBITDA ratio, are generally in line with its peers, suggesting that the company is fairly valued.
    • Compared to its peers, Walmart's valuation is slightly higher than Target's, but lower than Costco's. This suggests that Walmart is a relatively attractive investment option, but it may need to continue to deliver strong financial performance to justify its current valuation.

  7. Price Performance:

    • Walmart's stock price has generally outperformed the benchmark Consumer Discretionary Select Sector SPDR Fund (XLY) over the past three years, demonstrating a strong track record of generating higher returns.
    • Compared to its peers, Walmart's stock price has generally outperformed Target, but has underperformed Costco. This suggests that Walmart's stock price has been more volatile than Costco's, but less volatile than Target's.

  8. Future Outlook:

    • Walmart's future prospects are positive, with continued growth in its core business and investments in strategic initiatives.
    • The company's free cash flow is expected to continue to grow, providing financial flexibility for debt repayment, dividend growth, and investments in organic growth opportunities.
    • The company's strategic initiatives, such as investments in technology and supply chain automation, are expected to have a positive impact on future earnings and cash flows.

  9. Summary:

    • Walmart is a financially healthy company with strong revenue growth, profitability, liquidity, and solvency.
    • The company is effectively managing its costs and generating profits from its sales.
    • Walmart is investing in its physical infrastructure and digital capabilities to support its long-term growth prospects.
    • The company's cash flow generation is strong, providing financial flexibility for debt repayment, dividend growth, and investments in organic growth opportunities.
    • Walmart faces substantial legal and regulatory risks, particularly around opioid-related litigation and investigations, which could result in material liabilities and reputational damage.
    • The company must carefully manage capital allocation amid economic volatility.
    • Walmart's valuation is generally in line with its peers, suggesting that the company is fairly valued.
    • The company's stock price has generally outperformed the benchmark and Target, but has underperformed Costco.
    • Walmart's future prospects are positive, with continued growth in its core business and investments in strategic initiatives.
    • The company's free cash flow is expected to continue to grow, providing financial flexibility for debt repayment, dividend growth, and investments in organic growth opportunities.
    • The company's strategic initiatives, such as investments in technology and supply chain automation, are expected to have a positive impact on future earnings and cash flows.
Peer fundamentals 
Fundamentals
Insights
  • Walmart is a financially healthy company with strong revenue growth, profitability, liquidity, and solvency.
  • The company is effectively managing its costs and generating profits from its sales.
  • Walmart is investing in its physical infrastructure and digital capabilities to support its long-term growth prospects.
  • The company's cash flow generation is strong, providing financial flexibility for debt repayment, dividend growth, and investments in organic growth opportunities.
  • The company faces substantial legal and regulatory risks, particularly around opioid-related litigation and investigations, which could result in material liabilities and reputational damage.
  • The company must carefully manage capital allocation amid economic volatility.
Analysis
  • Revenue - Walmart's revenue growth is strong and sustainable, driven by a combination of factors, including strong performance in food and consumables, improvements in general merchandise, and continued momentum in e-commerce and newer business initiatives like advertising and membership programs. - The company is gaining market share, including in general merchandise, and seeing transaction counts and unit volume increase across markets. - The company's revenue growth is linked to new product launches, market expansion, and pricing strategies.
    • Profitability
      • Walmart's profitability is strong, with a return on average assets of 6.1%, return on average total equity of 18.97%, return on average total capital of 18.67%, and return on average invested capital of 11.37%. These ratios are all significantly higher than the industry average, indicating that Walmart is more efficient at generating profits from its assets and investments.
      • The company's profitability is improving, with all of these ratios showing an increasing trend over the past four quarters. This suggests that Walmart is becoming more efficient at managing its costs and generating profits.
    • Liquidity
      • Walmart's liquidity position is strong, with a current ratio of 0.8 and a quick ratio of 0.22. These ratios are both lower than the industry average, suggesting that Walmart may be less liquid than its peers. However, the company's strong cash flow generation and low debt levels provide a buffer against potential liquidity issues.
      • The company's liquidity is decreasing, with both the current ratio and quick ratio showing a decreasing trend over the past four quarters. This suggests that Walmart may be using its cash to fund operations or investments.
    • Solvency
      • Walmart's solvency is strong, with a low debt-to-equity ratio of 72.62% and a debt-to-EBITDA ratio of 1.16. These ratios are both significantly lower than the industry average, indicating that Walmart has a conservative capital structure and is not overly leveraged.
      • The company's solvency is improving, with both the debt-to-equity ratio and debt-to-EBITDA ratio showing a decreasing trend over the past four quarters. This suggests that Walmart is becoming less leveraged and more financially stable.
    • Operational Efficiency
      • Walmart's efficiency is high, with a gross profit margin of 25.11% and an EBITDA margin of 6.59%. These ratios are both lower than the industry average, suggesting that Walmart may be less efficient than its peers at generating profits from its sales. However, the company's strong profitability and low costs suggest that it is still highly efficient.
      • The company's efficiency is improving, with both the gross profit margin and EBITDA margin showing an increasing trend over the past four quarters. This suggests that Walmart is becoming more efficient at managing its costs and generating profits from its sales.
    • Cash Flow Analysis
      • Walmart's cash flow generation is strong, with a healthy level of operating cash flow and robust free cash flow generation.
      • The company's free cash flow margin is increasing, indicating that it is becoming more efficient at generating cash from its operations.
      • The company's capital expenditures are aligned with its strategic initiatives to enhance its digital capabilities, supply chain, and store/club network.
      • The company's overall capital allocation strategy is balanced, with a focus on both organic growth and shareholder returns.
    • Risk Factors
      • The decreasing trend in cash and short-term investments is a potential red flag, as it suggests that the company may be using its cash to fund operations or investments.
      • The company faces substantial legal and regulatory risks, particularly around opioid-related litigation and investigations, which could result in material liabilities and reputational damage.
      • The company must carefully manage capital allocation amid economic volatility.
    • Future Outlook
      • Walmart's future prospects are positive, with continued growth in its core business and investments in strategic initiatives.
      • The company's free cash flow is expected to continue to grow, providing financial flexibility for debt repayment, dividend growth, and investments in organic growth opportunities.
      • The company's strategic initiatives, such as investments in technology and supply chain automation, are expected to have a positive impact on future earnings and cash flows.
Most recent earnings report
Financial statements 
All public filings
Comparative Analysis
Benchmarks (as of 2024-09-17)
Consumer Discretionary Select Sector SPDR Fund (XLY)
  • Performance Comparison:
    • WMT has consistently outperformed XLY over all the periods analyzed, demonstrating a strong track record of generating higher returns. This outperformance has been particularly significant over the past three years, with WMT's annualized return exceeding XLY's by a considerable margin.
  • Risk and Return Analysis:
    • WMT has consistently generated higher annualized returns than XLY, indicating that WMT has been a more profitable investment. However, XLY has exhibited higher volatility than WMT, suggesting that XLY carries a higher risk profile.
    • WMT's maximum drawdown of 25.74% is lower than XLY's 39.67%, indicating that WMT has experienced smaller peak-to-trough declines than XLY. This suggests that WMT is less susceptible to significant losses during market downturns.
  • Risk-Adjusted Performance:
    • While WMT has generated higher returns than XLY, XLY's Sharpe Ratio has been consistently higher, indicating that XLY has generated better risk-adjusted returns. This suggests that XLY has been more efficient in generating returns relative to its risk.
    • WMT's beta has been consistently below 1, indicating that WMT is less volatile than the overall market. XLY's beta has been consistently above 1, indicating that XLY is more volatile than the overall market. This suggests that WMT is less sensitive to market movements and carries a lower risk profile than XLY.
  • Overall Assessment:
    • WMT has consistently outperformed XLY in terms of absolute returns, but XLY has offered better risk-adjusted returns. WMT's lower volatility and lower beta suggest a more conservative investment profile, making it a potentially suitable option for investors seeking lower risk. However, investors seeking higher risk-adjusted returns may prefer XLY, despite its higher volatility.
    • It is important to note that past performance is not necessarily indicative of future results. Investors should consider their individual risk tolerance and investment goals before making any investment decisions.
Peers Price History(as of 2024-09-04)
Costco Wholesale Corp. (COST)Target Corp. (TGT)
  • Performance Comparison:
    • WMT has generally outperformed TGT over the past three years, particularly in the longer timeframes (2 years and 3 years). However, WMT has underperformed COST in the 1-year and 3-year periods. This suggests that WMT's performance has been more consistent than TGT's, but it has struggled to keep up with COST's strong growth.
  • Risk and Return Analysis:
    • WMT has generally provided higher annualized returns than TGT, but lower returns than COST. This indicates that WMT has been able to generate returns while managing risk effectively, but it has not been as successful as COST in maximizing returns.
    • WMT has exhibited lower annualized volatility than COST, but higher volatility than TGT. This suggests that WMT's stock price has been less volatile than COST's, but more volatile than TGT's.
    • WMT's maximum drawdown has been significantly lower than TGT's, indicating a more resilient risk profile. However, WMT's maximum drawdown is still higher than COST's, suggesting that WMT may be more susceptible to market downturns than COST.
  • Risk-Adjusted Performance:
    • WMT has generally offered a better risk-adjusted return than TGT, as indicated by its higher Sharpe ratio. However, COST has consistently shown a higher Sharpe ratio than WMT, suggesting that COST has been more efficient in generating returns relative to its risk.
    • WMT's lower beta value indicates that it is less sensitive to market movements than TGT and COST. This suggests that WMT's stock price is less likely to fluctuate as much as the market, making it a potentially less risky investment.
  • Overall Assessment:
    • WMT has demonstrated a strong track record of performance, particularly in the longer timeframes. It has been able to generate returns while managing risk effectively, as evidenced by its lower volatility and maximum drawdown compared to TGT. However, WMT has struggled to keep up with COST's strong growth and risk-adjusted returns.
    • WMT's lower beta suggests a lower risk profile compared to TGT and COST, making it a potentially less risky investment for investors seeking stability.
    • Overall, WMT appears to be a solid investment option for investors seeking a balance between growth and risk. However, investors seeking maximum returns may want to consider COST, which has consistently outperformed WMT in terms of both absolute and risk-adjusted returns.
Peers Fundamentals(as of 2024-07-31)
Costco Wholesale Corp. (COST)Target Corp. (TGT)

  1. Market Position and Size:

    • WMT is the largest company in the peer group, with a market capitalization significantly exceeding its competitors, Target Corp. (TGT) and Costco Wholesale Corp. (COST).
    • WMT's market cap is 550630.3 greater than TGT and 226297.0 greater than COST.
    • This dominance in market capitalization is further supported by its significantly larger revenue and EBITDA compared to its peers.
    • WMT's revenue is 143883.0 greater than TGT and 110820.0 greater than COST.
    • Similarly, WMT's EBITDA is 8737.0 greater than TGT and 8438.0 greater than COST.

  2. Profitability and Efficiency:

    • WMT's profitability metrics are a mixed bag.
    • While it outperforms its peers in Net Profit Margin, it lags behind in Gross Profit Margin and EBITDA Margin.
    • However, it significantly outperforms the industry average in all three metrics.
    • WMT's efficiency in generating returns is also mixed.
    • While it outperforms its peers in Return on Average Assets, Return on Average Total Equity, Return on Average Total Capital, and Return On Average Invested Capital, it lags behind in all metrics compared to its peers.
    • However, it significantly outperforms the industry average in all metrics.

  3. Financial Health and Stability:

    • WMT's liquidity position is relatively weak compared to its peers and the industry average.
    • Its Current Ratio and Quick Ratio are significantly lower than the industry average, indicating a lower ability to meet short-term obligations.
    • However, WMT's debt position is relatively strong compared to its peers and the industry average.
    • Its Total Debt to Total Equity Ratio and Debt / EBITDA are significantly lower than the industry average, suggesting a lower level of financial risk.

  4. Valuation and Market Perception:

    • WMT's valuation metrics are mixed.
    • While it is relatively undervalued compared to the industry average based on Enterprise Value To Sales, Enterprise Value To EBITDA, and Price To Sales Ratio, it is slightly overvalued based on Price To Earnings and significantly overvalued based on Price to Book Ratio compared to the industry average.

  5. Cash Flow and Capital Management:

    • WMT's cash flow generation strength is significantly higher than its peers, considering its market cap.
    • Its Net Operating Cash Flow, Total Capital Expenditure, and Free Cash Flow are all significantly higher than its peers, indicating a strong ability to generate cash from operations and invest in its business.

  6. Growth and Future Prospect:

    • WMT's growth trends suggest that it is struggling to maintain its market share and competitive position.
    • While it shows superior growth in Book Value Per Share, EBIT Margin, and Return on Average Total Equity, it lags behind in key areas like Sales/Revenue, in millions, EBITDA, Net Income, and Free Cash Flow.
    • WMT's growth rates have been consistently decreasing over the 5-year period for Free Cash Flow, Free Cash Flow Margin, and Total Assets.
    • This suggests that WMT's growth in these areas may be unsustainable.
    • WMT's most recent year-over-year growth rates are lower than its 5-year CAGRs for Free Cash Flow, Free Cash Flow Margin, and Total Assets.
    • This suggests that WMT's growth in these areas is decelerating.

  7. Potential for Investment:

    • WMT's investment attractiveness is mixed.
    • It has a strong financial foundation with a strong cash flow generation capacity and low debt levels.
    • However, its growth prospects are uncertain, with declining free cash flow and lower revenue growth compared to its peers.
    • Its valuation is also mixed, with some metrics suggesting undervaluation compared to the industry average, but others suggesting overvaluation.

  8. Key Risks and Considerations:

    • WMT's declining free cash flow and lower revenue growth compared to its peers are significant risks for investors.
    • The market's perception of WMT's growth potential and profitability may be overstated, leading to a potential for a decline in valuation if WMT fails to meet expectations.

  9. Overall Assessment:

    • WMT is a large and financially stable company with a strong cash flow generation capacity and low debt levels.
    • However, it faces challenges in revenue growth and free cash flow generation, and its efficiency in generating returns is lower than its peers.
    • Its growth prospects are uncertain, and its valuation is mixed.
    • Investors should carefully consider these factors before making an investment decision.