Walmart: A Retail Survivor

06/01/2020 5:00 am EST

Focus: CONSUMER

Chris Graja

Senior Analyst: Retail, Argus Research Corporation

While the coronavirus outbreak is devastating the economy and large components of the retail market, we believe Walmart (WMT) will be a survivor, notes Christopher Graja, an analyst with Argus Research, a leading independent Wall Street research firm.

In this turbulent environment, Argus is recommending that investors dollar-average into existing long-term positions in the highest-quality stocks. Investors may also considering initiating new positions at discounted prices, while being aware of the risks of future volatility in individual positions.

Historically, periods of severe stock-market turbulence have proven to be good times for careful and disciplined stock selection, with a focus on the highest-quality and financially strongest names.

We believe that WMT, with excellent operating efficiency, AA credit ratings, and a record of raising its dividend every year since 1974 is one of these companies.

While many other businesses are shutting their doors or laying off workers, WMT has announced a special $300 bonus to full-time hourly workers to thank them for their dedication during the crisis; a $150 bonus to part-time hourly associates; and has accelerated regularly quarterly bonuses.

The company also has hired more than 235,000 temporary associates through the end of May, to help better serve customers during this time of “increased demand.” Many of these temporary positions will convert to permanent positions over time. WMT has reached out to the restaurant and hotel industries in an effort to help employees who have been furloughed.

Our five-year earnings growth rate estimate is currently 5%, but we could raise it to 6% due to ongoing market-share gains and the potential for additional growth from e-commerce investments. We are using 6% in some of our valuation scenarios.

WMT has raised its dividend every year since it initiated a payout in 1974. Over the last five years, the company has raised the dividend at an annual rate of about 2%. WMT’s indicated dividend yield is 1.7%. We view this as attractive based on the company’s financial strength and prospects for future dividend increases.

Our five-year rating remains "buy". Walmart is a survivor in the very tumultuous retail sector. The company’s finances are top tier within this sector, the store environment is improving, and e-commerce capabilities are growing. We are raising our target price to $140 from $130.

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