Walmart (WMT), also known as the biggest retailer in the United States and the biggest company by revenue. Walmart has rural grocery and retail by the *explicative* and has begun to expand into online delivery using its 5500 stores in the United States and another 6100 stores abroad as leverage. Walmart’s pickup is already a huge part of its ecommerce business, and it will only keep exploding with delivery as it introduces its Walmart+ subscription service which includes “free“ delivery.
In the past year alone, Walmart has proven that it has much more power to deliver groceries to consumers than even amazon does (especially in rural parts of the country). Online Sales have skyrocketed almost 100% over the past year (97%) and has crushed records in revenue in the process. They are back to repurchasing shares at close to 5 year highs as revenue has increased. CEO McMillon has even said they have gained more market share in their groceries segment.
Sales skyrocketed during the pandemic as Walmart quickly switched to a more touch free environment while reducing capital expenditures. Return on Assets and Return on Investment have stayed relatively steady at roughly 6% and Free Cash Flow rapidly increasing since 2018 while carrying around roughly 10 billion more cash (36 billion total) than last year and roughly 50 billion in long term debt which is only about 2-5 billion in annual payments over the next 5 years (extremely easy to maintain).
In the last couple of quarters Walmart has actually gone down in Free Cash Flow. This is why the stock seems to have hit a brick wall when it comes to its movement up and has yet to hit the highs it hit in 2020 while everything else in the market has seemed to move up. The reason for this you ask? Walmart has started increasing inventories (hence reducing its free cash flow) since January or February of this year.
Now why would Walmart seem to be doing this? Not only is Walmart a consumer staple but Walmart is basically saying it is capitalizing on yesterday’s prices to increase tomorrows profit. Or Walmart is basically betting on inflation (and they would know as the number one retailer in the United States). Also as supply constraints increase (as so many companies are beginning to face their own denial as to how much shortages are affecting their business) Walmart is actually taking strides to increase profits as prices rise. It is trying to avoid the shortages that it faced in 2020 by learning from 2020 and prepping for the 2nd half of 2023. This makes Walmart one of the ultimate hedges against inflation.
Well, we don’t want to pay too much for an inflation hedge do we? Well, we are in luck, Walmart seems to have an intrinsic value of about $175/share. If Walmart is able to use its inventories and leverage its prices lower than competitors it might have one of the strongest economic moats going into the 2nd half of this year. With the large liquidity in Walmart, call options probably wouldn’t be the worst idea as well. It also seems like it might be building enough momentum to break that $151 resistance.
This article was written by u/captnamurica2.
