Global retail giant Walmart’s (NASDAQ:WMT) vast market presence and smart growth strategies have been the cornerstone of its success story so far. A challenging macro environment this year has not been able to dent its business, as evidenced by its recent robust Q3 Fiscal 2024 results. Shares are up 10% YTD, compared to the S&P 500 (SPX) gain of 20%. Its consistent dividend growth over the last 50 years signifies its ability to keep its business stable, making me bullish on WMT now.
A Good Quarter amid Challenging Conditions
What began as a single discount store expanded into a vast network of hypermarkets, hypermarkets, and membership-only warehouse clubs. Walmart now operates approximately 10,500 stores and clubs in 19 countries worldwide. Its size is Walmart’s competitive advantage, which eliminates many small stores.
In addition, its “Everyday Low Price” strategy succeeded in attracting customers, especially during a period of rising inflation. In the third quarter of Fiscal 2024, total revenue grew 5.2% to $161 billion, driven by strong demand across all of its segments.
Walmart’s US comparable store sales jumped 4.9%, while e-commerce sales rose 24% in the quarter. Its Mexican and Central American division (Walmex), along with China, drove its International sales up 11% to $28 billion. Adjusted earnings per share (EPS) also increased by 2% to $1.53. Both revenue and earnings topped consensus estimates.
CEO Doug McMillon commented on the third-quarter results, saying, “We had strong revenue growth across segments for the quarter, and we’re excited to get an early start on the holiday season.”
Walmart ended the quarter with cash and cash equivalents of $12.2 billion and total debt of $55.4 billion. While the debt seems enormous, Walmart’s interest coverage ratio as of October 2023 is 9.09. It is calculated by dividing a company’s operating income by its interest rate.
This ratio indicates how convenient it is for the company to pay interest on its outstanding debt. A high ratio, such as WMT, indicates robust financial health.
Added Advantage: King of Dividend
The added benefit of choosing Walmart as an investment is that it’s a dividend stock — and not just any dividend stock. Increasing dividends for more than 50 consecutive years now, the retail giant has now graduated from Dividend Aristocrat to Dividend King. It offers a dividend yield of 1.46%. However, this is lower than the consumer sector average of 2.1%.
While the dividend yield is not that attractive, consistency in dividend payments is more important when choosing dividend stocks. Additionally, it has a dividend payout ratio of 34.6%, which means investors can expect sustainable dividends, going forward. This ratio determines how much of its net earnings are paid out as dividends.
Although Walmart is not a fast-growing technology stock, it is the world’s largest retailer, boasting massive customer loyalty. Despite the difficult economic conditions, Walmart has consistently generated earnings and free cash flow (FCF), allowing it to boost shareholder returns in the form of dividends.
For the nine months ended Oct. 31, it generated FCF of $4.3 billion, an increase of $0.7 billion over the same period a year ago. Positive FCF should allow for debt settlement, paying dividends and financing future expansions.
The Way Forward for the Retail Giant
Walmart also expanded its supply chain capabilities by partnering with Symbotic (NASDAQ: SYM), an AI-powered robotics and software platform. In 2022, both companies agreed to install Symbotic systems in all 42 of Walmart’s distribution centers across the United States.
The entire automation process in 42 centers could take more than eight years to complete. However, it will help Walmart streamline its supply chain process, reduce costs and boost margins in the short term. Moreover, according to CNBCWalmart is not only a partner but also an investor, with an 11% stake in Symbotic.
Driven by a strong third quarter and the holiday season in full swing, Walmart increased its Fiscal 2024 full-year guidance. It now expects sales to increase by 5% to 5.5% a year. That would bring full-year revenues in the range of $636 billion to $639 billion.
In addition, Flipkart’s Big Billion Days in India, which fell in Q4 of Fiscal 2024, could help boost international sales further. For the Fiscal Year, EPS is expected to come in between $6.40 and $6.48. Meanwhile, analysts’ forecasts for Fiscal 2024 are slightly higher than management, with expected EPS of $6.49 on revenue of $642 billion.
Speaking about the near future, management stated, “Over the next several years, we expect margins to move higher as we modernize our supply chain and scale higher margin growth initiatives.”
Is WMT Stock a Buy, According to Analysts?
After its Q3 earnings, Roth MKM analyst Bill Kirk maintained his Buy rating on the stock, with a price target of $179. The analysts believe that Walmart will continue to increase its market share and profitability. He added, “Remote volatility aside, we believe Walmart is on the precipice of a major inflection.”
Additionally, HSBC analyst Daniela Bretthauer also reiterated her Buy rating on the stock, with a price target of $200. The analyst is impressed with Walmart’s efforts to renovate its stores and grow e-commerce sales and is positive about the updated Fiscal 2024 guidance.
Over the past three months, 25 out of 30 analysts covering WMT stock rate it a Buy, while five rate it a Hold. There are no Sales recommendations for this consumer. Walmart’s average share price is $180.79, which implies an upside potential of 15.9% over the next 12 months.
The bottom of Walmart Stock
Walmart’s journey from small-town retailer to global powerhouse has left an indelible mark on the retail industry. Its investments in online platforms and digital infrastructure reflect its commitment to remain relevant in an ever-evolving market.
Earning the title of Dividend King in the highly competitive consumer goods sector represents Walmart’s ability to maintain stable earnings amid economic volatility. It also presents its commitment to return money to shareholders. This business strength has most likely contributed to its stock gaining around 137% in the last 10 years.
That’s why I believe that no matter the competition, it will be difficult to shake Walmart’s dominance. The company is likely to continue to expand its revenues and profits, thus maintaining its title of Dividend King.
Disclosure
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.