Walmart (NYSE: WMT) sent shockwaves throughout the financial realm last week with its outperforming earnings report, propelling the stock price up by approximately 10%.
There exists a myriad of reasons to be enamored with Walmart at present. Positioned advantageously to cater to a consumer base grappling with relentless inflation, the business’s low-cost model, alongside the escalating convenience of its e-commerce domain, renders the stock an enticing prospect.
The Roaring E-Commerce Beast
A pivotal highlight from Walmart’s fiscal 2025 first quarter was the burgeoning dominance of its e-commerce arm. Notably, the home delivery segment experienced a growth rate surpassing in-store pickups for the first time.
Total global e-commerce sales ascended by an impressive 21%. This emergence highlights Walmart’s ability to challenge Amazon (NASDAQ: AMZN) head-on in the digital arena. The amalgamation of its conventional brick-and-mortar business with the burgeoning e-commerce wing continues to place Walmart at the forefront of the retail domain.
Furthermore, Walmart benefits immensely from the widening abyss between dine-out expenses and home-cooked meals, as succinctly put by Chief Financial Officer John David Rainey, “It’s roughly 4.3 times more expensive to eat out than it is to eat at home, and that’s benefiting our business.” The repercussions are evident in the lackluster sales performances of various restaurants and fast-food chains, exemplified by Starbucks‘ disappointing sales results earlier this year.
This evolution positions Walmart favorably as consumers navigate their spending habits, with foot traffic for fast-food and fast-casual dining plunging by 3.5% in the first quarter, as reported by CNBC.
A Formidable Foe
In an economic landscape still grappling with inflation, investing in a retailer capable of delivering essentials such as food and toiletries at bargain prices emerges as the prudent choice.
The retail behemoth eclipsed estimates on earnings and revenue in its latest quarter, registering a 6% year-over-year revenue uptick to $161.5 billion and a 22.4% surge in adjusted earnings per share to $0.60.
Walmart initially projected adjusted earnings for the full fiscal year within the range of $2.23 to $2.37 per diluted share. In the latest report, Walmart revised this estimate to target the upper echelon of the range, or potentially even surpass it.
This forecast would position Walmart with a forward P/E ratio hovering around 27 times earnings, notably lower than the five-year historical average of approximately 31 times earnings as per Y charts.
Image source: Getty Images.
A Compelling Proposition
In a climate where inflation remains a dominant force affecting consumers, particularly in the United States, Walmart stands as an irresistible force.
According to CNN, some analysts affirm Walmart’s pricing edge to be approximately 25% lower than traditional supermarkets, attracting a new demographic spectrum. While historically beneficial to low and middle-income households, Walmart indicated that part of its sales upsurge last quarter stemmed from an influx of high-income shoppers opting to patronize Walmart.
To me, the retail titan ticks all the right boxes. It boasts escalating comp store sales, supra-double-digit growth in e-commerce, marked proficiency in both order/pick-up and delivery spheres, and, most significantly, focuses on the most essential product line: groceries.
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