Walmart’s big automation push will boost margin performance, analysts say

James Rogers 

Published: April 6, 2023

Walmart has previously wrestled with inventory issues, notably in 2022

Walmart Inc.’s ambitious automation strategy will boost margin performance for the retail giant, analysts say.

This week the company described its efforts to re-engineer its supply chain with greater use of data, more intelligent software and automation. “The outcome improves in-stock, inventory accuracy and flow whether customers shop in stores, pickup, or have a delivery,” Walmart (WMT) said in a statement released Tuesday to coincide with its 2023 Investment Community meeting.

Walmart says that roughly 65% of its stores will be serviced by automation by the end of fiscal year 2026. Approximately 55% of fulfillment-center volume will move through automated facilities, according to the retailer.

Walmart has previously wrestled with inventory issues, notably in 2022 when it issued two profit warnings in two months as the retail giant marked down prices to clear excess inventory. Set against this backdrop, analysts have welcomed the company’s automation push.

Related:Walmart sees automation in two-thirds of its stores by fiscal 2026

Stifel raised its Walmart price target to $161 from $157 Wednesday, citing the company’s tech investments. “We think technology investments in supply chain/automation should drive considerable cost efficiencies in time, with mix-accretive initiatives incrementally contributing to margin expansion and providing earnings flexibility,” Stifel analyst Mark Astrachan wrote in a note.

The analyst firm came away from Walmart’s investment community meeting “with a more favorable view of [Walmart] shares, seeing more upside than downside from current levels,” according to Astrachan.

This sentiment was echoed by Raymond James. “We came away encouraged by the meetings and conversations with senior leadership, particularly the potential to improve margins (gross and operating income) over the next 3-5 years as automation investments and business mix shifts (growth in higher-margin businesses) hit a positive inflection point,” analyst Bobby Griffin wrote in a note released Thursday.

Raymond James has an outperform rating for Walmart.

Also see:Walmart responds to report of layoffs at fulfillment centers

Wells Fargo raised its Walmart price target to $170 from $155 Thursday. “We are buyers of WMT post a bullish investor day,” wrote Wells Fargo analyst Edward Kelly, in a note. “This leading omni-retailer finally looks to be on the cusp of capturing the margin upside of advanced tech investments.”

Walmart’s stock rose 0.8% Thursday, outpacing the S&P 500 index’s gain of 0.2%. The company’s shares are up 6.4% in 2023, compared with the S&P 500’s gain of 6.8%.

Of 40 analysts surveyed by FactSet, 32 have an overweight or buy rating and eight have a hold rating for Walmart.

Additional reporting by Bill Peters and Tomi Kilgore.

-James Rogers

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