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Stock Strategist

Wal-Mart Invests for the Future

Positioning for omnichannel success may cost in the short term but should pay off in the long run.

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 Wal-Mart's (WMT) first-quarter results and outlook were better than our expectations, as well as those of consensus. The shares have clawed back from the recent declines caused by weak performance across most of the retail sector, but they still trade at a discount to our fair value estimate. There is less margin for error than before, but the current price still presents a decent risk/reward trade-off in a wide-moat company.

Our long-term thesis--that Wal-Mart is among the better-positioned firms with an omnichannel approach--is unchanged. However, for the shares to completely converge toward our fair value estimate, the company will need to leverage its moderating investments, presumably over the next one to two years. Moving a ship the size of Wal-Mart takes time, and we caution against extrapolating one quarter (positive or negative) into the indefinite future.

Ken Perkins does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.