Walmart stares at a wall of fear but fundamentals remain solid

By: Motiur Rahman
Motiur Rahman
Md Motiur is a Financial Analyst at Invezz covering the North American, European and Asian stock markets. He has… read more.
on May 28, 2022
  • Walmart, among other retailers, faces high-cost pressure due to inflation.
  • Last week, the stock lost 19.49% and since then, it has recovered 3.6%.
  • The stock will continue the recovery, and investors should take advantage of the current market discount.

Walmart Inc. (NYSE:WMT) stares at a wall of fear as inflationary pressures rattle the retailers. Last week, the stock plummeted 19.49%. This was after industry peers reported growth in revenues, yet the EPS seemed to decline. We find that the retailers, including Walmart, are only suffering temporarily as they try to adjust both prices and costs.

Retailers pass on inflation costs through consumer pricing. However, inflation also causes an increase in operating costs. The businesses are not able to adjust the operating costs as quickly as they can for prices. This explains why retailers are reporting lower or flat EPS even as revenues grow. In the upcoming earnings, however, the retailers would be better at managing the costs.

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Our analysis finds that the fundamental strengths of Walmart remain intact. The company will continue to grow revenues, and EPS numbers will be better for the whole year. As the markets get a better understanding of the numbers, investors will take positions. This will have a positive effect on the stock.

Walmart starts recovery after crashing 19.49% last week

Source – TradingView

Walmart’s price is on the path to recovery. This week it has gained 3.6%. At the valuation of $123, the stock remains heavily discounted. The analysis maintains the price target at $150. The company will gain in two stages. The first is to the $135 support level. The second stage will be the rally from $135 to $150, by the next earnings date.

Summary

Walmart is a buy. The market is now deconstructing the wall of fear with a good understanding of how the stock is impacted by inflation. The target price is $150 by August.

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