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Walmart Stock: Attractive Dividend Yield, Upside Potential

Stock MarketsSep 22, 2021 05:00PM ET
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© Reuters. Walmart Stock: Attractive Dividend Yield, Upside Potential

The United States economy is primarily consumption driven.

Walmart (NYSE:WMT) is among the top stocks to consider benefiting from sustained consumption spending in the economy.

Over the last 12 months, WMT stock has gained 6.8%. (See WMT stock charts on TipRanks)

However, as economic growth gains traction, the stock is poised for a rally. I am bullish on Walmart, with the company’s omni-channel sales growth strategy likely to deliver results.

It’s worth noting that retail sales for August 2021 unexpectedly increased by 0.7%. With the approaching holiday season, retail sales are likely to be strong. It might there be a good time to remain invested in WMT stock, which offers an annualized dividend of $2.20.

Deutsche Bank (DE:DBKGn) Bullish on Walmart+

Deutsche Bank analyst Krisztina Katai believes that Walmart+ is gaining momentum.

The grocery chain’s membership service was launched one year ago, and is estimated to have reached 32 million subscribers.

It’s worth noting that Walmart+ has an annual subscription cost of $99.

Current levels of subscription would imply an annualized cash flow potential of $3.2 billion. As subscribers swell, the segment is likely to deliver incremental cash flows in the coming years.

Deutsche Bank has a Buy rating on Walmart stock with a price target of $185.

Omni-Channel Growth, Emerging Market Presence

The future of retail seems to be omni-channel. It’s not surprising that all retailers have significantly boosted their e-commerce presences in the last few years. This includes the likes of Target (NYSE:TGT) and Costco (NASDAQ:COST).

Walmart has also pursued aggressive online sales expansion. For Q2 2022, the company reported 6% e-commerce net sales growth. On a two-year stack basis, e-commerce sales have surged by 103%.

Online sales are likely to slow on a relative basis as people return to stores. Walmart still remains on-track to reach $75 billion in global e-commerce sales by the end of 2021.

In its international business, Walmart reported net sales of $23.2 billion for Q2 2022. Sales were lower by 15.2% on a year-on-year basis, primarily due to divestitures.

However, international growth is likely to remain strong in the coming years. In 2018, Walmart acquired A 77% stake in Flipkart in India.

The stake was acquired for $16 billion and valued Flipkart at $20.8 billion. In June 2021, Flipkart raised $3.6 billion through fresh funding, which valued the Indian e-commerce giant at $38 billion. With India still at an early growth stage, Walmart seems well positioned to benefit.

Besides India, the company also reported strong sales growth from Mexico and China in Q2 2022. Presence in emerging markets will help Walmart sustain long-term growth.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, WMT stock comes in as a Strong Buy, with 18 Buys and four Holds assigned in the past three months.

The average WMT price target is $172.48 per share, implying 20.3% upside potential from current levels.

Conclusion

With steady growth in the U.S., and presence in key international markets, Walmart has earnings growth visibility. A strong balance sheet also positions Walmart for opportunistic acquisition-driven growth.

WMT stock therefore looks attractive from a medium-to-long-term investment horizon.

Disclosure: At the time of publication, Faisal Humayun did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

Walmart Stock: Attractive Dividend Yield, Upside Potential
 

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