Walmart: Great Company, But Stock Decline Next





Summary

Walmart's retail business model is well situated to compete with Target and Amazon.

However, its valuation is much higher than normal, and dividend yield is at a decade low.

Considerable selling is part of the technical trading picture since April, and weak performance against the S&P 500 is noteworthy.

Walmart (WMT) has a solid business foundation in America, a foothold in most consumer pocketbooks, and can easily hold its own against the two biggest nationwide COVID-19 retail competitors Target (TGT) and Amazon (AMZN). The value proposition of its hybrid e-commerce product offerings and local store pickup option may even be “best in breed” during the summer of 2020. However, valuations are quite high historically and interest in the stock has been waning since April.

First the good news - Walmart has been a trendsetter in the U.S. coronavirus pandemic economy. The company's buy online and pickup at the store option has been the most successful in the physical retail store industry during 2020. My family uses Walmart’s contactless parking lot pickup as a way to avoid in-store shopping and potential exposure to the novel virus, with related transmission risks. Another consumer advantage is it helps reduce unwanted spending, by cutting out impulse purchases when shopping in person. In terms of real world spending patterns, we have cut trips to other stores in favor of Walmart buys of food and essentials.

U.S. store sales for the May quarter were up +10%, and revenues originating online rose +74%. Few other brick-and-mortar retailers saw a similar rise, as many physical stores were required to close for quarantines and stay-at-home orders.


I am starting to openly wonder, if the contactless store pickup process morphs into a long-term change in the way Walmart and other general merchandiser’s do business. The convenience and time-saving attributes of this retail model will remain after the coronavirus problem fades in importance during 2021-22. In terms of lasting change, trauma and crisis management ideas of the magnitude we all face today will undoubtedly reset how the retail economy works for the rest of our lives. This new retail model also helps to employee hundreds of thousands of American teens and recently unemployed Americans as personal shoppers, with wages well above federal and state minimums.

For investors in retail, Target is trying to match Walmart’s pickup at the store success, while Amazon’s delivery to your doorstep takes longer to execute and will invariably be more costly. FedEx (FDX), United Parcel Service (UPS) and the U.S. Post Office have increased prices dramatically in 2020, while shipping volumes and labor cost pressures argue even higher individual package delivery costs are coming for Amazon and all retailers into 2021.