Report
Zain Akbari
EUR 850.00 For Business Accounts Only

Morningstar | With Third-Quarter Results Meeting Our Expectations, We Believe Walmart Shares Trade Near Fair Value

We do not plan to make a large change to our $96 per share valuation for wide-moat Walmart after it posted on-track third-quarter earnings. Strength in its domestic physical and digital operations has propelled strong year-to-date results, and we believe the performance supports our contention that the firm can continue to deliver returns even as it adapts to a changing retail landscape and builds omnichannel strength. Our long-term forecast is largely intact (low- to mid-single-digit percentage revenue growth, 4% adjusted operating margins, on average, over the next decade).

Year-to-date sales rose 3% against a 4.2% operating margin. In addition to strong domestic performance, ongoing strength in Mexico (which saw 6.3% quarterly comparable sales growth) highlighted results for Walmart's international operations, which accounted for about a quarter of fiscal 2018 sales. Management revised its adjusted EPS guidance to $4.75 to $4.85 from $4.65 to $4.80, against our $4.88 expectation.

Third-quarter comparable sales (excluding fuel) at Walmart U.S., which accounted for roughly 65% of fiscal 2018 sales, rose 3.4%, with balanced ticket (2.2%) and traffic (1.2%) growth. Expansion came on top of hurricane-related sales momentum in the same period last year, which we believe highlights the strength of the results and is consistent with the generally favorable recent marks posted by retailers in the American market. We believe the firm's rapidly growing digital offerings should continue to lift the segment (e-commerce contributed about 140 basis points to Walmart U.S.'s comparable sales growth); it added around 300 grocery pickup locations in the quarter and now delivers from 600 stores, up from around 320 at the end of the second quarter. We believe Walmart's competitive advantages should enable a leading omnichannel experience, underpinning our low-single-digit segment top-line expansion expectations over the next decade despite an ongoing need to keep prices low.
Underlying
Walmart Inc.

Walmart is engaged in global operations of retail, wholesale and other units, as well as eCommerce, located throughout the U.S., Africa, Argentina, Canada, Central America, Chile, China, India, Japan, Mexico and the U.K. The company's operations are conducted in three reportable segments: Walmart U.S., which is a mass merchandiser of consumer products, operating under the Walmart and Walmart Neighborhood Market brands, as well as walmart.com, jet.com and other eCommerce brands; Walmart International, which includes various formats divided into retail, wholesale and other categories; and Sam's Club, which is a membership-only warehouse club that also operates samsclub.com.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Zain Akbari

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