Ian Salisbury
Consumers are becoming more downbeat. It could be more bad news for Walmart stock.
On Tuesday, the Conference Board reported its consumer confidence index fell for the fourth straight month, as shoppers continued to fret about inflation and the possibility of trade war with Canada, Mexico, and China. The reading -- of 92.9 -- was the index's lowest in four years.
The sour mood could signal more trouble for Walmart, the largest U.S. retailer by revenue. Walmart shares were edging up 0.01% to $84.77 Wednesday. But they are down about 5.8% so far this year. They look vulnerable in part because they had such a big run up in 2024, when they returned 74%. As a result, Walmart shares trade at nearly 32 times forward earnings, up from just 22 times at the start of last year.
Walmart, known for its low prices on an enormous selection of everyday staples, tends to hold up well compared with many retailers when spending slows. But that doesn't mean the superstore chain is immune to downturns. The company already warned investors about potential weakness in the coming year. In February, Walmart issued weak first-quarter profit guidance, and said it expects sales for the full year to only reach the low end of what Wall Street had expected.
Walmart cast those forecasts as conservative. But consumers' attitudes toward the economy have only continued to soften. Last week Stifel released its own consumer survey -- with more dour findings.
"Recent weakening is most pronounced amongst higher-income consumers, though lower-income households also indicate they plan to spend less," Stifel wrote. "We think this is in part influenced by heightened U.S. macro and geopolitical volatility, with higher-income consumers impacted by recent stock-market declines."
Stifel added that big-box stores such as Costco Wholesale and Walmart should fare better than some retail peers, but still lowered its Walmart price target to $93 from $99, while maintaining a Hold rating on the stock.
Walmart consumer-sales data tracked by Bloomberg, and drawn from credit- and debit-card transactions, suggest a mixed picture over the past few weeks. Sales were up year over year in each of the last three weeks, going back to March 2, but growth was erratic. Meanwhile, the number of visits consumers made to Walmart stores has been trending downward, the data suggest.
Morningstar, one of the biggest Walmart bears on the street, thinks the stock may be overdue for a big selloff. Analyst Noah Rohr maintains a price target of just $63, in part because of Walmart's recent guidance, which he calls "underwhelming," and in part because of last year's big run-up.
While noting that Walmart's huge retail footprint and wide selection gives it some advantages, Rohr argues the stock price could wilt in the face of stiff competition for consumer dollars. "The industry is cutthroat due to the virtual absence of customer-switching costs, not to mention the disruption caused by online penetration and the accelerated rise of e-commerce juggernaut Amazon.com," he wrote in not last week.
Of course, Walmart stock still has plenty of fans. On Tuesday, Jefferies published a note warning its proprietary macro indicators suggest Walmart's first-quarter margins could come under pressure.
Still, Jefferies left unchanged its Buy rating on Walmart stock and $120 price target. The price target is based on the assumption Walmart can trade at 42 times Jefferies' estimate for fiscal 2027 earnings per share of $2.86.
Write to Ian Salisbury at ian.salisbury@barrons.com
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March 26, 2025 14:55 ET (18:55 GMT)
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