Why Walmart's Stock Can Rise 35%

Walmart Inc. (WMT), the world's largest retailer, saw its worst day in three decades last week as investors sent the stock sliding on fears of a decelerating e-commerce segment and heightened competition from tech behemoth Amazon.com Inc. (AMZN).

In response to WMT's sell-off following its most recent quarterly earnings report posted on Tuesday, many on the Street are recommending investors buy on the dip, as reported by Barron's. Bulls see the Bentonville, Ariz.-based retailer's shares as significantly oversold on the earnings news, setting price targets as high as $126, suggesting that the stock is likely to rise 35% over the next 12 months.

Closing up about 0.3% on Monday at $93.12 per share, WMT reflects a 17.6% dip since highs reached in mid-February and a 5.7% decline year-to-date (YTD), compared to the S&P 500's 4% increase over the same period. (For more, see also: Why Amazon's Biggest Threat May Be Wal-Mart.)

Bulls' Reasons for Confidence in Walmart

Despite recent weakness, investors will boost the stock back up as they start to recognize the global retailer's strong growth, according to several research firms including Barclays, Susquehanna, Stephens, and Cowen & Co, according to a Feb. 21 story written by Teresa Rivas of Barron's.

Analysts have highlighted positive indicators in the Q4 report, including Walmart's 12 straight quarters of same-store sales traffic growth and its best two-year total comp growth in eight years. The bulls' optimism is representative of a larger debate regarding the traditional brick-and-mortar giant's ability to compete with Amazon in e-commerce.

Those upbeat on Walmart's position against the growing dominance of Amazon note that as the company continues to post strong e-commerce growth and store traffic, it maintains its solid dividend yield and ability to leverage its global scale. Further, while WMT's investment in technology worked to weigh on earnings in the short term, the spending has been viewed a necessary and wise investment that positions Walmart to keep its leadership position in the future.

In the company's earnings call, management said a slowdown from a 50% growth rate in e-commerce in Q3 to 23% in the latest quarter was "expected as we fully lapped the Jet acquisition as well as created a healthier long-term foundation for holiday," referring to Walmart's $3.3 billion deal to buyout e-commerce platform Jet.com in August 2016. The company added that a smaller portion of the slowdown was unexpected as the firm experienced operational challenges. That being said, Walmart closed out 2017 with e-commerce growth over 40%, reiterating plans to continue focusing on mobile and digital capabilities, and improving the in-store experience.

Share Price on the Rise

In light of these positive headwinds, Barclays' Karen Short expects shares to gain 25% to $116, suggesting that Walmart is one of the only real challenges facing Amazon. Short, who rates WMT as overweight, also applauded the company's attractive valuation and free-cash-flow-profile, as reported by Barron's. Susquehanna's Bill Dreher echoed the upbeat outlook, foreseeing the stock gaining 35% to $126.

According to S3 Partners, short sellers are also still doubling down on WMT stock. The short interest analytics company indicated that short interest in WMT spiked a whopping 43% to $823 million last year, reaching an all-time record of $3.94 billion on January 25, a few days before the retail stock shot to its historical high. (For more, see also: How Wal-Mart Is Beating Amazon At Its Own Game.)

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