Global retail giant Walmart (NASDAQ:WMT) Huge market presence and smart growth strategies have been the basis of the company’s success story so far. This year’s challenging macro environment did not take a toll on the company’s business, as evidenced by its recent strong fiscal 2024 third quarter performance. The stock is up 10% year-to-date compared to the S&P 500 (SPX) 20% increase. I’m currently bullish on WMT, as the company’s consistent dividend increases over the past 50 years indicate the company’s ability to maintain a stable business.
A good quarter despite difficult circumstances
What started as a single discount store has expanded into a vast network of hypermarkets, supermarkets, and membership warehouse clubs. Walmart currently operates approximately 10,500 stores and clubs in 19 countries around the world. Its size has become Walmart’s competitive advantage, forcing many smaller stores out of business.
Additionally, the company’s “everyday low prices” strategy has been successful in attracting customers, especially during periods of rising inflation. Total revenue for the third quarter of fiscal 2024 increased 5.2% to $161 billion due to strong demand across all segments.
Walmart’s U.S. same-store sales rose 4.9% in the quarter, and e-commerce sales rose 24%. Mexico and Central America (Wolmex), along with China, boosted overseas sales by 11% to $28 billion. Adjusted earnings per share (EPS) also increased 2% to $1.53. Both sales and profits exceeded consensus expectations.
CEO Doug McMillon commented on the third quarter results: “We saw strong sales growth across our divisions this quarter and are excited to get an early start to the holiday season.”
Walmart ended the quarter with $12.2 billion in cash and cash equivalents and $55.4 billion in total debt. Although the debt seems large, 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 expense.
This ratio shows how convenient a company is to pay interest on outstanding debts. A high ratio such as WMT indicates financial health.
Added benefit: Dividend King
The benefit of choosing Walmart as an investment is that it’s not just a dividend stock, it’s a dividend stock. With more than 50 years of consecutive dividend increases, the retail giant has now gone from Dividend Aristocrat to Dividend King. The dividend yield is 1.46%. However, this is lower than his 2.1% average for the consumer sector.
Dividend yields are less attractive, but consistency in dividend payments is more important when choosing dividend stocks. Furthermore, the dividend payout ratio is 34.6%, so we can expect sustainable dividends going forward. This ratio determines how much of the net income is paid out as dividends.
Walmart isn’t the fastest growing technology stock, but it’s the world’s largest retailer and boasts tremendous customer loyalty. Despite difficult economic conditions, Walmart has been able to consistently generate profits and free cash flow (FCF) and increase shareholder returns in the form of dividends.
It generated $4.3 billion in FCF for the nine months ended October 31, an increase of $700 million from the same period last year. Positive FCF should allow you to settle debt, pay dividends, and fund future expansion.
The path forward for retail giants
Walmart also sells Symbotic (NASDAQ:SYM), an AI-powered robot and software platform. In 2022, the two companies have agreed to implement the Symbotic system in all 42 of Walmart’s distribution centers across the United States.
The entire automation process in the 42 centers could take more than eight years to complete. However, this will help Walmart simplify its supply chain processes, reduce costs and increase profit margins in the short term. Furthermore, according to CNBCWalmart is not only a partner but also an investor with an 11% stake in Symbotic.
Buoyed by a strong third quarter and the holiday season in full swing, Walmart raised its full-year outlook for fiscal 2024. The company currently expects sales to increase by 5% to 5.5% year over year. This puts full-year sales in the range of $636 billion to $639 billion.
Additionally, Flipkart’s Big Billion Days in India happened to coincide with the fourth quarter of FY24, which could contribute to further growth in international sales. EPS for the fiscal year is expected to be between $6.40 and $6.48. On the other hand, analyst estimates for fiscal 2024 are slightly higher than management’s expectations, with expected EPS of $6.49 and revenue of $642 billion.
Looking to the near-term future, management said: “We expect margins to increase over the next few years as we modernize our supply chain and expand our high-margin growth strategy.”
Is WMT stock a buy, according to analysts?
After the third quarter results, RothMKM analyst Bill Kirk maintained his rating on the stock as a “buy” and set a price target of $179. Analysts believe that Walmart will continue to increase its market share and profitability. “Short-term volatility aside, we think Walmart is on the verge of a major transition,” he added.
Additionally, HSBC analyst Daniela Bretthauer 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 its updated fiscal year 2024 guidance.
Over the past three months, 25 out of 30 analysts covering WMT stock have rated it a “buy” and 5 have rated it a “hold.” There is no sell recommendation for this consumer stock. Walmart’s average price target of $180.79 suggests 15.9% upside potential over the next 12 months.
Walmart stock conclusion
Walmart’s rise from a small-town retailer to a global powerhouse has left an indelible mark on the retail industry. Investments in its online platform and digital infrastructure reflect the company’s commitment to remain relevant in an evolving market.
Earning the title of “Dividend King” in the highly competitive consumer sector reflects Walmart’s ability to maintain stable earnings amid economic fluctuations. It also demonstrates our commitment to returning profits to shareholders. The strength of this business has likely driven the company’s share price up around 137% over the past decade.
Therefore, I believe that no matter what kind of competition there is, it will be difficult to shake Walmart’s dominance. The company is likely to continue increasing its revenue and profits and maintain its Dividend King title.
disclosure
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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