Ca$htag$: Walmart (WMT) Wins as Inflation Pushes Shoppers Toward Value

SPEAKER_1 (0:00)

Well, time now for our hashtag segment. For that, let's bring in our next guest, and that is Megan Brantley, Vice President of Research at LikeFolio, with new sentiment data on Walmart. You all are bringing your sentiment data on a day when it's getting more love from Wall Street with UBS boosting its view, moving from a hold to a buy. But what does the latest sentiment data look like at a headline level, Megan, and good to see you.

Megan Brantley (0:21)

Yeah, good to see you. Thank you guys for having me. So when we look at Walmart, this upgrade comes at an interesting time. We're seeing other analysts say that Walmart has an interesting value proposition in a persistent inflationary environment, and when we look at things and how consumers are responding, we're certainly seeing signs that this is in fact true. When we look at overall demand interests, we see that trending up. Also, we have some different metrics that we can look at when we gauge consumer sentiment. I took a peek at that after reading through that upgrade, and to see what's driving consumer sentiment higher. One thing we track are price complaints.

We look at Walmart price complaints specifically, and those have been very low in the last year, and they're actually trending about 7 percent lower on a year-over-year basis. We do see Walmart increasingly be a place where consumers can turn whenever they feel like maybe their budget is stretched. Also, this to us is a sign that perhaps more of these high-income households that have been trading down are continuing to do so, and maybe more could be even piling in Walmart. At a high level, while the stock has had a nice month, I think it's up about 10 percent in the last month even with today's news.

This is an area where at least our demand data and our sentiment data still does appear to be a bit leading.

SPEAKER_3 (1:45)

You know, Megan, this is a company that no one argues how high quality it is. No one argues all the things they're doing like appealing to price-conscious consumers, appealing to e-commerce. They grow or they move around like a very young, agile, lean company when actually they're massive.

The only negatives that I read consistently across the board is their valuation. And their valuation got way ahead of itself earlier in this year. The stock corrected.

It's since bounced off that pretty sizable correction, but it still remains a valuation question. The forward PE, or the PE is around 40 The forward PE is around 38 The 10-year PE historical is about 28 to 32 So with all the good things they're doing, and make no mistake, this firm competes with all the big ones. They have narrowed shopping down to just a couple big box. Costco, Walmart, Amazon, maybe we're ready to throw target back in there, but just not yet. But this is certainly one of the biggest big box retailers. But how do we justify, Megan, or can we justify the valuation in a name when it's on a day where it's got upgraded?

Megan Brantley (3:15)

Yeah, I think that even if you look at the way that the stock responded after last earnings, which at a face level, whenever you look at some of the metrics that we look at seem pretty nice, especially on the e-commerce front and especially on the front of some of these margin levers that I'll hit on in a minute, but stock still fell about 9% that day.

Definitely, the bar is high still in investor minds, despite the pullback, a bit of a pullback that we've seen comparatively to the run that it was on in prior years, the run up that you talked about. But I think that an area where a lot of people are looking is saying, okay, Walmart isn't just about selling your groceries or selling your merchandise anymore. It has membership fees that are growing, I think, by about 17% year over year. It has advertising that was up about 38% year over year. It also has increasingly marketplace commissions. I think that's relevant for this chart because you can see that bar that we have right there on the far right. That's e-commerce growth that we're checking and where our level is showing up right now. You can see a nice improvement versus last quarter.

Some of this, whenever you dig into it, was it captured a larger share of those Amazon Prime Day shoppers last week that bounced around and looked at Walmart too. An interesting little near-term bump that we're tracking right here in these e-commerce sales. But at large, I think all of these margin levers also help to support Walmart's long-term bullish story even from these levels.