JPMorgan trims Walmart target as regulatory headwinds weigh on sales
The bank cut its price target to $125 from $137, citing weakness in the health and wellness sector and new pricing rules, though it maintains an Overweight rating on the stock.
JPMorgan has lowered its price target for Walmart shares to $125 from $137, while retaining an Overweight rating following the retailer’s latest quarterly results. The move comes after Walmart shares fell more than 9 per cent, despite the company reporting rising revenue and profits. At the time of writing, Walmart stock trades around $104, valuing the company at a market capitalisation of $825 billion.
The share price decline was driven by US comparable sales of 2.6 per cent for the quarter, a figure impacted by weakness in the health and wellness sector and new maximum fair pricing regulations. Walmart’s chief financial officer, John David Rainey, noted that the new pricing regulation impacted total comparable sales by 125 basis points, exceeding the 100 basis point hit the company had planned for entering the year.
JPMorgan’s analysts described the setup heading into results as a "hairball," a messy tangle of moving pieces that made the stock difficult to call. The bank had already cut its same-store sales estimate three weeks prior to the earnings release, and the actual figure came in below that lowered projection. However, the bank noted that growth in advertising, marketplace, and membership segments is currently offsetting headwinds in core retail operations.
The retailer’s newer business lines showed robust performance, with global advertising revenue increasing by 38 per cent and US Marketplace sales climbing 52 per cent. Membership income grew by nearly 17 per cent worldwide, and Walmart Plus recorded its best first-half membership growth in the program’s history. Rainey stated that almost half of Walmart’s profit growth in the quarter came from these areas rather than the core retail business.
CEO John Furner characterised the quarter as strong overall, with adjusted operating income up 17.4 per cent in constant currency. He highlighted that pharmacy headwinds masked solid performance across grocery, general merchandise, and e-commerce. Walmart also executed more than 11,000 price rollbacks during the quarter, up from 7,200 at the end of the first quarter, which management believes will boost unit volume and market share.
Other analysts have also adjusted their outlooks in response to the results. BMO Capital cut its target to $126, while TD Cowen lowered its target to $125, both citing the comparable sales slowdown. Bernstein held its Outperform rating, pointing to the company’s strong margins. The average price target among 32 analysts is $130, suggesting 25 per cent upside potential from current levels.
