Can Walmart Reach An All-Time High When The COVID-19 Crisis Ends?

Walmart‘s (NYSE: WMT) stock grew 2% from $119 at the beginning of this year to $122 on April 30th, compared to an 11% decline for the broader S&P 500. While Walmart’s stock has outperformed thus far, we believe there could still be a modest upside from the current levels and the company could reach an all-time high post the crisis. The stock is thriving during the COVID-19 pandemic, as the consumer spending trends are setting up really well for the grocery-led retail sector. Our dashboard, ‘What Factors Drove 20% Change In Walmart’s Stock Between Fiscal 2018 And Now?‘ provides the key numbers behind our thinking, and we explain more below.

The stock price gain between fiscal 2018 (year ending January 2018) and 2020 can primarily be attributed to steady revenue and earnings growth for the company. Walmart’s revenues were up 5% from FY 2018 to 2020. This combined with a 44% jump in net income margin from 2.0% in fiscal 2018 to 2.8% in fiscal 2020, helped earnings per share grow 59%. The company has continuously done share buybacks between fiscal 2018 and 2020.

Walmart’s P/E multiple declined from 30.9x in 2017 to 21.8x in 2019. While Walmart’s P/E is up to about 23.3x now, given the volatility of the current situation, there is an additional possible upside for the company’s multiple, when compared to levels seen in the past year – P/E of 41.0x at end of fiscal 2019.

How Is Coronavirus Impacting Walmart’s Stock

Walmart is seeing the fear-led public stocking up on essentials at its outlets (or through delivery) during this coronavirus crisis. With the development of the coronavirus, Walmart has been handling increased demand and hiring thousands of new workers to meet it. Since many retailers have shut their doors and some state governments have ordered lockdowns, consumers have no choice but to turn to the consumer staples retailers who are remaining open. The company is also seeing a structural shift in shopping preferences as people are opting for online grocery and curbside pickup due to the social distancing norm. We believe Walmart’s Q1 (Feb-Apr’20) results will confirm the growing trend in its revenues.

Walmart’s stock has been doing better than the market overall, as they continue to see increasing sales. Between January 31st and April 30th, Walmart stock has gained close to 6% of its value vs. about a 10% decline in the S&P 500. A bulk of the decline in the stock markets came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.

Going by historical trends and our valuation dashboard for Walmart, we believe that the company’s stock could potentially offer upside returns from the current level. In addition, we also believe that the surge in demand will likely continue in the near to medium term.

We believe that Walmart’s peer Costco is also benefiting from the consumer’s panic buying during this crisis – and it could also see an upside from its current levels.

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. Additionally, the complete set of coronavirus impact and timing analyses is available here.

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