Walmart stock gains after price cuts as analysts back grocery strategy

Walmart Inc. WMT stock gained trading on Wednesday, as the stock looked to snap a three-week consecutive decline.

Analysts argued that the retailer's latest grocery price cuts are financially manageable despite intensifying competition across the sector.

The company announced broad price reductions on grocery and seasonal products after President Donald Trump revealed the initiative on social media ahead of Walmart's official announcement.

While the discounts have raised concerns about a potential grocery price war, analysts at Bank of America and Mizuho said the move fits within Walmart's existing financial guidance and should not materially pressure margins.

Analysts say price cuts fit within Walmart's financial outlook

Bank of America analyst Christopher Nardone said Walmart's latest discounts are being funded through spending already included in the company's guidance issued earlier this year, together with tariff-related refunds that have recently begun flowing back to the retailer.

According to Nardone, these financial resources allow Walmart to lower prices without changing its previously announced earnings outlook.

He added that the move reinforces Walmart's willingness to compete aggressively in grocery, where pricing remains one of the most important drivers of consumer purchasing decisions.

Mizuho also maintained its Outperform rating on Walmart and reiterated its $137 price target, implying roughly 24% upside from the stock's previous close.

Analyst David Bellinger noted that the retailer has multiple financial tailwinds helping offset the discounts, including more than $2 billion (approx. £1.5 billion) in expected tariff refunds and lower diesel prices, which have reduced transportation costs compared with earlier forecasts.

Grocery competition expected to intensify

Although analysts broadly supported Walmart's strategy, they also warned that competition across the grocery industry is likely to increase during the second half of the year.

“Grocery will get even more competitive in the second half,” writes Wolfe Research’s Spencer Hanus. “With Kroger, Albertsons, Costco, and Dollar Tree (more visible $1 price points) all being very vocal about price investments, this announcement will heighten concerns about a price war.”

Hanus noted that Walmart's price rollbacks had already increased about 20% during the first quarter and are expected to accelerate in coming quarters.

He also argued that Walmart's pricing advantage remains difficult for competitors to match.

For every 1% pricing gap rivals attempt to close, Hanus estimates they would need to spend as much as $1.5 billion (approx. £1.1 billion), making it difficult for most retailers to fully match Walmart's scale.

Instead, competitors are expected to focus price reductions on staple products such as milk and eggs to improve consumers' perception of value.

Inflation pressures continue shaping consumer behavior

The latest discounts come as consumers continue dealing with elevated living costs. Inflation stood at 4.2% in May, well above the Federal Reserve's 2% target, while interest rates have remained unchanged.

“Above all, deflationary pricing seems very much needed for the consumer,” writes David Bellinger of Mizuho Securities.

Despite the recent pullback in Walmart shares, some market observers remain constructive on the company's longer-term outlook.

CNBC's Mad Money host Jim Cramer said the stock's 17.5% decline from its May record high represents an attractive buying opportunity, arguing that several of the company's key challenges are beginning to ease.