Walmart Stock Gets Rare Double Upgrade on Eve of Earnings Report - Barron's

The back-to-school section at a Walmart in Houston.
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Walmart’s second-quarter earnings are on tap Tuesday, but R5 Capital isn’t waiting for the results to take a bullish stance on the retail giant, despite prior misgivings.

Analyst Scott Mushkin double upgraded Walmart (WMT) to Buy from Sell on Monday, with a $169 price target.

“The rationale for our dramatic change in view is that our research suggests that sales are strong, much stronger than we had expected,” he wrote, while noting that sales probably have grown even more.

While stimulus checks may have been mostly spent by now, other government support, including the enhanced child tax credit, are still helping Walmart’s core customers, he noted, and the current resurgence in Covid-19 also should funnel additional spending to Walmart.

“Strong sales are simply a great elixir for retailers, and we believe that the better sales are letting Walmart add some labor hours to its stores,” he wrote, which in turn should improve operations and the “very challenged conditions we had been seeing earlier this year.”

This better operating climate looks poised to last at least through the rest of the calendar year, leading Mushkin to raise his outlook. Potential earnings beats should drive up the stock, even as its valuation bumps up against the top of its historical range.

Nonetheless, he noted that his call “feels like a white knuckler,” given that Walmart has plenty of room to improve, and has plenty of competition. Still, he thinks the good outweighs the bad, and “a bit better is good enough for now.”

Walmart was down 0.1% to $149.40 in morning trading. The shares have gained 3.7% year to date and 10.3% in the past 12 months.

Those gains are much smaller than those of rival Target (TGT) although plenty of analysts think the bull case for Walmart is still intact.

Write to Teresa Rivas at teresa.rivas@barrons.com

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