Walmart - Fuel - Premium Agency & Portfolio

Equity Research

Rating: BUY | 12-M Price Target: $130 | Upside: +25% | Current Price: $103

Rating and Price Target

We rate Walmart a Buy with a 12-month price target of $130, which is about 25% above the current price of $103. Most Wall Street analysts agree with this view. Out of 20 analysts covering the stock, 19 rate it a Buy, and their average price target is around $132.

Walmart used to be known as a low-margin grocery and general merchandise retailer. Now it is turning into something closer to a retail and technology platform. Its advertising business (called Walmart Connect), its online marketplace, and its membership programs are all growing much faster than its regular store sales, and these businesses make more money per dollar of revenue. That is a good sign for future profits. At the same time, the stock is already priced fairly high compared to its own history, so we are optimistic but not blindly bullish.

Company Overview and Business Segments

Walmart is the largest retailer in the world by revenue. It runs about 11,000 stores and employs around 2.1 million people. The company reports its results in three main segments:

Walmart U.S. sells groceries, general merchandise, and health products in its stores, plus online shopping and delivery. This is the biggest and most profitable part of the company.

Walmart International runs stores and online platforms outside the U.S., especially in Mexico, China, and India (through its ownership of Flipkart and PhonePe in India).

Sam's Club U.S. is Walmart's membership warehouse club business, similar to Costco, where customers pay an annual fee to shop.

On top of these three segments, Walmart has built newer, higher-profit businesses that cut across all of them. The most important is Walmart Connect, which sells advertising space to brands inside Walmart's stores, website, and app. Others include membership fees, fees charged to third-party sellers on Walmart's online marketplace, the Walmart+ subscription service, financial services through a partner called OnePay, and investments in automated warehouses, robotics, and delivery technology.

Our view: We believe this "platform layer" on top of Walmart's core stores is the real reason to be excited about the stock. In the most recent quarter, Walmart's marketplace sales grew 52% and membership income grew 17%, both growing much faster than the company's overall sales. This tells us Walmart's profit mix is shifting toward higher-margin businesses faster than most investors realize.

Recent Financial Performance

Revenue in Walmart’s latest quarter (FY2027 Q2, ended July 31, 2026) increased just under 6% year-over-year and topped expectations. However, the higher-margin businesses grew significantly faster than that: Walmart’s global advertising business grew 38%, Walmart Connect grew 43%, marketplace sales grew 52%, and membership revenue grew 17%. Walmart also increased its full-year guidance, forecasting more sales and profit than it had previously projected.

Something to keep in mind: Walmart benefited from roughly $2.9 billion in tariff refunds this quarter. That’s money returned to the company by the government in relation to tariffs. Thisone-time increase in margins should not be expected to continue every quarter.

In terms of growth, Walmart has seen its annual revenue increase steadily over the past five years, from about $573 billion five years ago to $713 billion in the fiscal year that just concluded. Its earnings per share have grown even more, increasing from approximately $1.42 to $2.73 during that same time. Expectations are for earnings per share to continue growing to about $2.89 next year and $3.23 the year after that.

Our view: Strong operational growth in this quarter shows that Walmart’s profit machine is turning in the right direction. Operating income grew approximately five times faster than revenue. However, a significant contributor to that profit was a tariff refund. Don’t expect that to repeat every quarter going forward.

Growth Drivers and Strategic Bets

Walmart Connect (advertising) Potential. Businesses like online advertising are usually significantly more profitable than physical goods. So even though it's small now, this has the potential to greatly improve margins as it scales.

Sam's Club Membership grossed more money this quarter than last. Additionally, comparable sales (sales at existing locations that have been open for more than one year) grew quicker at Sam's Club than at any other Walmart segment. This implies that members are not only shopping more, but they're continuing to renew their memberships.

International Diversification. Domestic retail is Walmart's largest but slowest-growing segment. Walmart has plenty of international growth opportunities if American consumption ever slows due to a recession or saturates due to shifting consumer habits.

Robotics and Automation. Walmart is investing a lot of money into robots and automated warehouses. If they ever reach scale, these investments could make Walmart's supply chain quicker and cheaper, which would make online groceries and same-day delivery substantially more profitable. Both have eaten away at margins for most other retailers.

Walmart doesn't just compete with Amazon. It competes with Amazon on online shopping, price tracking, and speed of delivery; Costco on membership warehouse clubs; Target on general merchandise and in-store experience; Kroger and Aldi on price of groceries; and nowadays cheap import sites like Temu and Shein on low-cost general merchandise.

Our View: We have a lot more confidence in Walmart's advertising and third-party marketplace growth than we do Walmart+. The company has been transparent about these figures. We have little idea how many subscribers Walmart+ has because the company does not publish that figure. As a result, any commentary on how well Walmart+ is doing relative to Amazon Prime is largely speculative.

Capital Allocation and Balance Sheet

Walmart had approximately $41.6 billion in cash from operations during the past reported fiscal year, compared to $36.4 billion the year prior. Walmart also had significantly higher capital expenditures during the past year, spending $26.6 billion on capital expenditures (building new warehouses, technology, automation, etc.) versus $23.8 billion the year prior. Capital expenditures are money that can be spent elsewhere if not spent on growing the business, so it's notable that Walmart is choosing to reinvest an increasing amount of cash into the business.

During just the past quarter, Walmart bought back $3.0 billion of its own stock and paid $2.0 billion in dividends. Walmart has increased its dividend for 52 consecutive years. Having a high dividend streak is always good, in our opinion, even if the dividend itself isn't terribly large. Walmart's dividend yield is currently less than 1%, which is lower than some of its retail peers such as Target or Kroger.

Walmart's debt is modest and not something we feel worried about.

Doug McMillon, Walmart's CEO for many years, retired at the end of January 2026. He was replaced by John Furner, who had been running Walmart's U. S. business. John David Rainey continues to serve as Walmart's Chief Financial Officer. Analysts have had mostly positive things to say about the transition, noting that it was prepared for a long time since Mr. Furner is a longstanding insider. However, there is always risk with transition at the CEO level.

Our view: we view Walmart's increased investment in automation as a positive long-term, structural decision that could help margins slowly expand over the coming years, even if it comes at the cost of some near-term free cash. Stay tuned for how the new CEO handles Walmart for his first full year.

Competitive Benchmarking

Walmart trades at a higher multiple to earnings than Amazon, Target and Kroger but a lower multiple than Costco. That’s logical. Costco’s membership warehouse business has the perception of extremely high quality and stability. Target and Kroger compete in businesses where profits are under constant assault. Walmart’s stock trades at a higher price than Target and Kroger because it is growing faster and has the advertising and marketplace businesses giving it additional profit potential.

Our view: We believe Walmart justifies a higher valuation than Target and Kroger. However, we also believe the stock is already fairly valued, meaning there is less room for the price to go up solely because investors are willing to pay more for each dollar of earnings. Future price appreciation is likely to come from actual earnings growth rather than the multiple expanding.

Strengths and Risks

We think Walmart's largest strengths are its scale (which allows it to buy goods at a lower cost than practically any other retailer), its huge/automating supply chain, its low price image supported by store brands such as Great Value and Equate, its increasing treasure trove of customer data that fuels its advertising business and Sam's Club member loyalty.

Key risks are rising costs associated with fulfilling online orders, the potential that tariffs on imported goods (particularly those from China) increase costs once again in the future, intense low-price competition in groceries from rival Kroger and Aldi, rising wages and potential labor organizing efforts, government scrutiny of a company of Walmart's size, and risk associated with Walmart's large investments in automation and advertising not scaling as expected. Recent CEO transition also creates some uncertainty.

Our view: While we see risks to Walmart, we think its cost advantages and delivery network are very real and difficult for competitors to replicate. As a result, we view Walmart's core competitive position as strong and battle tested. Walmart Connect's ability to grow 30-40% annually for the next few years remains a bigger question for us, as most advertising businesses slow significantly once they reach a certain scale.

Valuation

Trading at roughly 37x trailing earnings, Walmart is above its average forward multiplier of about 15-21x over the last 10-15 years. This makes Walmart significantly more expensive on a historical basis, largely due to expectations of continued growth and margin expansion from its advertising and marketplace businesses.

In comparison to its peers, Walmart's valuation is below Costco but well above both Target and Kroger. This falls in line with the notion that investors believe Walmart to be a higher-quality/fast-growing business than Target or Kroger but not as premium as Costco.

Our view: We think Walmart is fairly valued to slightly expensive. While not a screaming buy, the stock is not terribly overpriced if its higher-margin businesses continue to grow at a reasonable rate.

Bull, Base, and Bear Scenarios

Market Signals

Keep in mind that Walmart's biggest shareholders are large investment firms like BlackRock, Vanguard, and State Street. Each of those bought more shares recently which is a positive sign.

Most analysts that cover the stock have a Buy rating on it. A few have reduced their price targets recently despite maintaining a Buy rating. This can mean that analysts believe the company is doing fine but the stock price has already adjusted to much of the good news.

The Walton's, who started Walmart, still own a huge amount of stock. The Walton's have sold small portions of their stake regularly throughout the years. This is typical for such a large shareholder that has been around for so long. Don't view this as a negative sign.

Conclusion

We rate Walmart a Buy with a $130 price target, roughly 25% above where the stock trades today. We see Walmart as a good core holding for investors who want a stable, defensive company with real upside from its faster-growing advertising, marketplace, and membership businesses