Walmart is an online powerhouse
Wal-Mart Stores Inc has made the decision: if you can't beat 'em, join 'em.
The U.S. brick-and-mortar retail sector has been devastated in recent years by competition from Amazon.com and its online sales platform. But instead of fighting the times, Walmart has invested heavily in expanding its e-commece offerings.
According to Oppenheimer analyst Rupesh Parikh, Walmart has now joined Amazon in milking retail market share away from other brick-and-mortar retailers.
Walmart investors endured a horrible 2015 that saw the stock dip from as high as $84 per share to as low as $53 per share as it became clear that it would take an aggressive turnaround effort and a lot of investment for the company to survive in the Amazon era. Walmart poured billions of dollars into its online platform in recent years and has opened its wallet for a long line of e-commerce buyouts as well, including Jet.com, Bonobos, Moosejaw, Hayneedle and ShoeBuy.
In its 2016 letter to shareholders, Walmart said it expects its 2017 capital expenditures to total $11 billion in 2017, much of which has been poured into online sales.
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As a result of its efforts, Walmart reported a huge 60 percent surge in online sales in the second quarter, and its stock has bounced back to make new all-time highs in 2017.
The company reports third-quarter earnings on Thursday.
Parikh says patient Walmart investors are now on the right side of the battle between traditional and online retail. He says the latest round of store closing by Sears Holdings Corp. (SHLD) and the bankruptcy filing by Toys R Us are good news for Walmart.
"We would expect WMT to pick up share and also gain clout with key vendors as they seek to ensure adequate brick-and-mortar distribution," Parikh says.
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Even though Walmart stock has gained more than 31 percent year-to-date, Parikh is still bullish on the stock in the long term. "Shares are no longer undervalued, but we believe a premium valuation likely holds given the potential for accelerating financial metrics and money flows," he says.
Oppenheimer has an "outperform" rating and $100 price target for the stock.