Morgan Stanley analyst Simeon Gutman reiterated a Overweight rating on the shares of Walmart Inc
The retail giant reported Q1 revenue of $152.3 billion and adjusted EPS of $1.47, both beating the consensus.
- Following the first-quarter WMT U.S. comparable sales beat (+7.4% versus consensus +5.1%), fiscal 2024 comparable sales are now expected to grow slightly faster than the prior guidance of 2-2.5%, said the analyst.
- Price increases are becoming more difficult to justify from WMT's perspective and the analyst thinks they are looking not just to stabilize, but to potential rollbacks in future negotiations to the extent suppliers' costs are falling as well.
- This doesn't mean retail prices will go back to pre-COVID levels, but on a y/y basis some prices could turn deflationary, observed the analyst.
- Traction in general merchandise within e-commerce appears to be picking up in part due to recent strategic changes from WMT through expanding its seller and SKU counts and expanding the number of sellers utilizing fulfillment and advertising services, the analyst said.
- Gutman expects Walmart to stabilize from recent margin choppiness in the second half of fiscal 2023 with recapture opportunity in fiscal 2024 as top-line core momentum continues.
- The analyst also sees a growing ability to balance longer-term investments with near-term returns despite near-term challenges driven by a uniquely difficult inventory/mix backdrop.
- Weakening consumer, de-risked fiscal 2024 earnings path, and medium-term margin drivers make the investment case attractive, concluded the analyst.
