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UBS Upgrades Walmart Stock to a ‘Buy’ amid COVID-19

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Jun. 22 2020, Updated 1:48 p.m. ET

Walmart (NYSE:WMT) and Kroger (NYSE:KR) are among the few companies that have benefited amid the pandemic. The companies, which sell several essential items, continued to operate their stores as COVID-19 spread. Today, UBS upgraded Walmart stock to “buy” from “neutral” and raised the target price by $5 to $135.

According to The Fly, UBS thinks that Walmart’s earnings will accelerate due to higher productivity, rapid growth in e-commerce, and accelerated technology implementation. UBS also cited other favorable factors including growth prospects in markets like India and the potential in healthcare. Recently, the company purchased medication management technology from Carezone.

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Walmart’s strong e-commerce business

Several brick-and-mortar retailers suffered due to the growing strength of online players, particularly Amazon (NASDAQ:AMZN). However, Walmart has been investing aggressively in its online capabilities to fight competition from Amazon. According to CNBC, UBS is optimistic about the retail giant. The company has won new e-commerce customers amid the pandemic. Walmart has evolved from a traditional brick-and-mortar retailer to the second-largest e-commerce player behind Amazon. Recently, Walmart partnered with Shopify (NYSE:SHOP) to enhance its marketplace site. Under the deal, Walmart will open its marketplace to Shopify’s sellers. The company expects to add 1,200 Shopify sellers this year.

Notably, Walmart’s US e-commerce sales grew 74% YoY (year-over-year) in the first quarter of fiscal 2021. There was more demand for grocery pickup and delivery services. As at the end of the fiscal first quarter, Walmart offered Grocery Pickup services in 3,300 stores. The company also offers same-day delivery at 1,850 stores. Amid the pandemic, the company introduced Express Delivery in 1,000 stores by the end of the first quarter. During the first-quarter conference call, the company disclosed its plans to expand this service in about 2,000 stores by the end of June.

Meanwhile, the company’s US comparable sales grew 10% in the first quarter. The sales benefited from a spike in demand for food, consumables, health and wellness, and certain general merchandise categories. The company’s overall first-quarter revenue rose 8.6% YoY to $134.6 billion.

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Most analysts are bullish

Most of the analysts covering Walmart stock are bullish about the retail giant. Notably, 27 out of 35 analysts recommend a “buy,” seven recommend a “hold,” and one recommends a “sell.”

Strong revenue growth despite the current crisis, attractive dividends with a history of 47 consecutive annual hikes, and strong cash flows are some of the company’s strengths. Walmart’s profitability might be under pressure due to the expenses associated with COVID-19. However, strong sales could help to mitigate the impact of increased expenses.

Today, aside from UBS, Guggenheim also raised its target price for Walmart stock from $140 to $145. Overall, the stock might rise 12% based on an average 12-month target price of $135.39. As of June 21, Walmart stock has risen 0.8% year-to-date. Kroger and Costco have risen 11.2% and 2.0%, respectively, YTD.

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