Barron's — Walmart's Slump Makes the Stock a Buy
The company still dominates retail and is growing ancillary revenue streams — a beat-and-raise quarter sold like a miss has reset the bar and trimmed the premium multiple.
One-line take: Walmart (WMT) had its worst day in nearly five years (Aug. 20, −~10%) on a fiscal-Q2 report whose blemishes — soft Q3 outlook, mandated drug-price cuts hitting pharmacy revenue, fuel costs, U.S. comps just 2.6% (a multiyear low) — overshadowed a beat and a raise to FY2027 sales, operating income and EPS, continued share gains, margin expansion and FCF funding $3B of buybacks (Gimme Credit's Levenson: blindfolded, "you would probably guess its stock rose"). Still 7%+ below pre-report and down YTD, it now trades under 33x next year's EPS vs a 35x five-year average; FY28 EPS consensus only a dime lower at $3.23 (still double-digit growth) — Jefferies: most EPS-revision downside "already baked in." Bull points: breathtaking category share and high-growth Walmart+ and advertising (Neuberger's San Marco), tariff refunds recycled into price cuts (D.A. Davidson, $132 target, ~25% upside), a record of outperforming in downturns (+18% in 2008). Caveats: energy spike squeezes low-income shoppers and costs; not strictly a bargain; Gunderson expects S&P underperformance for 12 months but a $152 five-year target. (WMT Positive.)
1. Stocks & names mentioned
A written Barron's stock pick (no video), so the "At" column links to the article. Costco (a one-line relative-valuation note) and Amazon (a history reference) carry no argued view and are not rowed; the quoted firms (Neuberger Berman, Gimme Credit, Jefferies, D.A. Davidson, Gunderson Capital) are sources, not picks. Research legend: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis.
| Ticker | Name | Research | View | What the article said | At |
|---|
| WMT | Walmart | QT · SA · STK · FA | Positive | Barron's Stock Pick. Worst day in ~5 years (Aug. 20) on U.S. comps of 2.6% and a soft Q3 outlook, despite beating and raising FY27 sales/operating income/EPS, gaining share, expanding margins and funding $3B of buybacks. Now <33x next year's EPS vs a 35x 5-year average; FY28 EPS $3.23 still double-digit growth. Walmart+ and advertising "every bit as fantastic"; tariff refunds cut prices for share gains (D.A. Davidson $132, ~25% upside). Energy spike an overhang; historically strong in downturns. | read ↗ |
2. Talking points
The selloff
- Aug. 20: worst single day in nearly half a decade after fiscal Q2 — ongoing inflation already had investors worried about lower-income consumers, and years of outperformance meant high expectations.
- Stock still >7% below the pre-report level and down year-to-date; $105.83 at Wednesday's close.
What was actually wrong
- Q3 outlook below expectations; mandated lower drug prices hit pharmacy revenue; fuel-related costs persist with the oil spike.
- U.S. comparable sales 2.6% vs 4.1% prior quarter and 4.6% a year ago — the lowest in years (key points: total comps 3.4%, a six-year low).
What was right — "blindfold" test
- Gimme Credit's Carol Levenson: beat sales and earnings guidance, raised FY2027 sales, operating income and EPS, gained share, expanded margins, and generated more than enough FCF for $3B of buybacks — "you would probably guess its stock rose."
- Neuberger Berman's John San Marco (holder): share in some categories "breathtaking"; comps slower "but still quite healthy… I don't see a change in the underlying fundamentals."
Reset expectations and multiple
- FY2028 EPS consensus down only ~a dime to $3.23 — still double-digit growth. Jefferies' Corey Tarlowe: "the majority of the downside to EPS revisions is already baked in."
- Under 33x next year's earnings vs a 35x five-year average; now at a discount to Costco, which it used to trade close to.
The premium is still earned: tech-retailer flywheel
- San Marco: Walmart+ membership fees and advertising are "coming together in precisely the way Walmart envisioned 10 years ago when it set out to become a tech power retailer."
- D.A. Davidson's Michael Baker: using tariff refunds to lower prices should help Q3 comps and "increased share gains longer term"; target $132 (~25% upside).
Caveats and defensiveness
- Energy spike hurts low-income customers and raises Walmart's costs while the Iran war drags on — a likely overhang. Not strictly a bargain; the next five years won't look like the last.
- Gunderson Capital's Bill Gunderson: lags the S&P 500 "by a fairly wide margin" for 12 months, but a $152.05 five-year target — "still the best-in-class bricks-and-mortar retailer."
- Downturn record: +18% in 2008 vs S&P −38%; +2% in Feb–Mar 2020. Left for dead vs Amazon in the mid-2010s, then reinvented itself.
3. In plain English
A jargon-free summary of how each name is framed in the article. (Plain-language companion to the table above; renders on each ticker's consolidated page.)
WMT — Walmart Positive
Walmart's stock had its worst day in about five years in August after its quarterly results. Growth in its U.S. stores slowed to the weakest pace in years, government-mandated drug price cuts shrank pharmacy sales, and higher fuel costs are eating into profits. Investors, who had paid a high price for Walmart after years of strong gains, sold.
Barron's thinks they overreacted. In the same report Walmart beat its own forecasts, raised its full-year outlook, kept winning market share, widened its profit margins, and still had enough spare cash to buy back $3 billion of stock. Its newer businesses — Walmart+ memberships and selling ads to brands on its website and app — are growing fast and are higher-profit than selling groceries. It is also passing tariff refunds on to shoppers as lower prices, which should win more customers.
The drop took some air out of the valuation: under 33 times next year's earnings versus about 35 on average over five years. It isn't cheap, and high energy prices may weigh on its lower-income shoppers for a while — but Walmart has historically held up well when the economy weakens (it rose 18% in 2008 while the S&P 500 fell 38%), and one analyst sees about 25% upside.
Summary derived from the Barron's article (full text saved in transcript.txt) for personal study. Not investment advice. © Barron's / Dow Jones for source material.