Walmart Gains as Cowen Reiterates Outperform Rating and Raises Price Target
On Monday, analysts at Cowen reiterated their Outperform rating on shares of Walmart while raising their price target to $160, up from $155. The $160 price target is based on ~29x analysts FY22 EPS estimate of $5.50, compared to consensus estimates of $4.99 per share. The Outperform rating is based on analysts believing in Walmart’s ability to accelerate its digital ad biz & drive upside to e-commerce profitability. Analysts project ad business revenue could reach $3.4bn+ by FY23 yielding 1.8% share of the digital ad market & 5% to EPS.
Walmart has some compelling prospects for ad biz growth. Walmart is in the very early innings of building its ad prowess, but analysts point to numerous positives helping to build momentum towards high growth opportunities; these include decisions to bring its media group in-house, the launch of various tools and analytics for greater control and insights for advertisers, and strong early reads from advertisers.
Analysts also noted the many competitive advantages that could help Walmart, including the company’s US omnichannel scale. The omnichannel is a cross-channel content strategy that organizations use to improve their user experience and drive better relationships with their audience across points of contact. Rather than working in parallel, communication channels and their supporting resources are designed and orchestrated to cooperate. The US operations, with ~4,750 stores, 160mm weekly store & e-comm visitors, and close partnerships with leading CPG brands, can provide advertising partners insights into the omni-channel impacts of their campaigns.
The analysts also mention TikTok as being valuable to Walmart's prospects with younger audiences. As mentioned in the note, Cowen remains constructive on Walmart’s efforts to acquire a minority stake in TikTok. According to TikTok's management, TikTok's U.S. monthly active users exceeded 100mm in August and has 50mm daily active users, versus Walmart’s 160mm weekly store + e-commerce visitors. The partnership could really support efforts to increase significance to both younger customers and advertisers, while increasing customer engagement.
While optimism is certainly evident, Analysts did express some risks. The risks include Walmart underperforming based on more intense macroeconomic pressures, heavy investments in digital and e-commerce not bearing the hoped-for results and returns; and competition from both online and brick-and-mortar competitors potential impact to sales growth and margins. Keep in mind that while competitors like Amazon, Facebook, & Target operate in the same space, Ad revenue in the US contributes only 1% of Walmart’s total revenue. There is still an opportunity for the company to compete.
Disclosure: At the time of publication, I have no positions in Walmart. I have long positions in Amazon and long positions in Facebook. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article.