Analyst Edward Yruma from Piper Sandler believes that Walmart’s stock has the potential to increase by more than 30% in the next year. Yruma points out that investors are currently overlooking a major driver of growth for the company.
In light of this, Yruma has upgraded Walmart’s stock from Neutral to Overweight and has raised his price target from $145 to $210 – a substantial increase of approximately 45%.
According to Yruma’s research note on Tuesday, he states, “We believe as grocery inflation subsides, WMT has an opportunity to further extend market share gains.”
Despite the upgrade, Walmart’s shares (ticker: WMT) remained mostly unchanged, experiencing a slight 0.1% decrease to $159.18 during early afternoon trading. However, Yruma’s new price target suggests a potential increase of 32% from Tuesday’s stock price.
Walmart’s impressive performance in 2022 saw the company gain market share from competitors as consumers sought out value amidst soaring prices. Notably, Walmart attracted higher-income customers who typically shopped at places such as Target (TGT), Costco Wholesale (COST), and other grocery chains.
Yruma points out that even though inflation is slowing down, consumers are still sensitive to price. Walmart’s commitment to offering value gives them a significant advantage in retaining recent customers and attracting new ones.
It is worth noting that Walmart is considered a top stock pick by analysts at Piper Sandler.
The Power of Walmart’s Private-Label Strategy
Walmart’s ability to offer low prices is greatly attributed to its private-label strategy. A recent study by Piper Sandler reveals that Walmart’s private-label items are approximately 37% cheaper than their national brand counterparts. Not only does this affordability appeal to consumers, but it also grants Walmart the advantage to negotiate with brands for even lower prices.
This private-label approach has contributed significantly to the growth of Sam’s Club, Walmart’s warehouse division. Sam’s Club’s own private label, Member’s Mark, has gained popularity among customers as a more affordable alternative. According to Yruma, an analyst, Sam’s Club is Walmart’s most undervalued growth driver and a “turnaround hidden in plain sight.”
Impressively, Sam’s Club has consistently reported positive same-store sales growth across almost every category for the past nine quarters. In fact, its same-store sales growth has surpassed that of Costco for the past seven quarters.
If viewed as an independent entity, Sam’s Club would be among the top three retailers covered by Yruma, with an estimated annual revenue of around $84 billion. As Walmart continues to expand the reach of its warehouse club, this figure is likely to increase. Last year, Walmart announced plans to open more than 30 new clubs in the coming years.
It is evident that Walmart’s private-label strategy, combined with the success of Sam’s Club, has solidified its position as a dominant player in the retail industry.
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