On Friday, RBC Capital updated its outlook for Walmart Inc. (NYSE: NYSE:WMT), increasing the retailer's price target to $70.00 from the previous $62.00, while retaining an Outperform rating on the stock. The firm's decision follows Walmart's recent performance, which showed few weaknesses, with sustained robust sales, effective inventory management, and significant profitability from high-margin businesses.
The analyst at RBC Capital highlighted Walmart's healthy top-line and the effective handling of inventory levels. The strong performance of high-margin businesses was noted as a key driver for the company's robust financial flow-through. In light of these positive indicators, RBC Capital has adjusted its second-quarter U.S. comparable store sales (comp) estimate for Walmart upward to 3.3% from 3.0%, and its earnings per share (EPS) estimate to $0.64 from $0.62, which is within the company's guidance range of $0.62 to $0.65.
Looking further ahead, for the fiscal years 2025 and 2026, RBC Capital now expects Walmart's U.S. comp to grow by 3.5% annually, up from the previous estimates of 3.1% for FY'25 and 3.5% for FY'26. Additionally, the EPS forecasts for these years have been revised to $2.40 and $2.70, up from $2.35 and $2.58, respectively.
The new price target of $70 is based on approximately 26 times the revised FY'26 EPS estimate of $2.70. This valuation multiple represents an increase from the prior multiple of around 24 times.
Despite the higher multiple appearing costly compared to historical standards, RBC Capital suggests that the expanding profit contributions from advertising and membership income justify a re-rating of the stock. The firm's stance reflects confidence in Walmart's ability to sustain its growth trajectory and profitability.
InvestingPro Insights
As RBC Capital raises its price target for Walmart (NYSE: WMT), real-time data from InvestingPro aligns with their optimistic outlook. With a market capitalization of $515.91 billion and a P/E ratio standing at 25.68, Walmart demonstrates robust financial stature. The company has also shown a commendable revenue growth of 6.03% over the last twelve months as of Q4 2024, underscoring its capacity to expand earnings. Additionally, investors may find Walmart's dividend yield of 1.3% attractive, especially considering the company's history of increasing its dividend for 29 consecutive years, a testament to its financial reliability and shareholder commitment.
InvestingPro Tips highlight Walmart's strong performance, with a perfect Piotroski Score of 9 indicating sound fiscal health. Moreover, the company's stock is trading near its 52-week high, reflecting market confidence. For those looking to delve deeper into Walmart's financials and future prospects, InvestingPro offers additional insights. There are 13 more InvestingPro Tips available, which could further inform investment decisions. Interested readers can take advantage of the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing access to comprehensive analysis and data to guide their investment strategies.
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