Skip to Content
Stock Analyst Update

Mixed First-Quarter Results at Walmart, Shares Rich

Our long-term view of the wide-moat retailer remains in place, and we suggest investors await a more attractive entry point.


After it posted mixed first-quarter results, we do not plan a large change to our $108 fair value estimate for wide-moat Walmart (WMT), with our long-term targets (low-single-digit annual percentage sales growth, 4% adjusted operating margins, on average) in place despite pandemic-related volatility. We suggest investors await a more attractive entry point.

The U.S. namesake banner’s 10% comparable growth lagged our 12% mark, including fuel, though e-commerce growth of 74% beat our 60% forecast. Although stimulus payments led to a late-quarter recovery, higher-margin discretionary categories were more sluggish than we expected and contributed to an 89-basis-point segment operating margin slump (we assumed only a small pullback). However, Sam’s Club outperformed (a result of greater-than-expected new membership sign-ups, we suspect), with 9% comparable growth, including fuel, ahead of our 8% mark and profitability up 10 basis points rather than our 50-basis-point expected decline. The international unit was broadly in line with our expectations for 8% constant-currency growth and a 10-basis-point operating margin pullback.

We suspect the sales uplift and profitability headwind from e-commerce will remain as customers continue to adapt to social distancing recommendations. We do not see the discontinuation of the brand as a meaningful factor, as recent growth in all aspects of Walmart’s namesake e-commerce presence augured well for combining operations. We are similarly encouraged that Walmart is adding more general merchandise categories to its pickup platform, which should add cost leverage while providing a margin uplift from adding more lucrative categories to what had been a grocery-focused operation. Still, we anticipate the shift to higher-cost digital fulfillment options will accelerate as a result of the pandemic, leaving long-term operating margins near fiscal 2020’s 4% mark despite scale-based cost leverage and improving international economics.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

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

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.