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The Ratings Game: Walmart may have lost grocery share during COVID, but it’s well positioned to get it back

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Walmart Inc. may have given up some market share in the grocery category during the pandemic, but the retail giant’s investments and advancements have made it likely the company will regain that share, analysts said Wednesday.

“[Walmart] noted it saw market share gains in grocery, a category where it ceded some dollar share last year as customers became less price sensitive,” wrote UBS analysts led by Michael Lasser. “With inflation ramping up and food-away-from-home spend poised to rise, we think Walmart is positioned as well as anyone to take grocery share in FY’22. Said another way, its comps should hold up better than many other large retailers.”

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Walmart’s updated guidance doesn’t take into account the child tax credit introduced by the administration of President Joe Biden that could give the company a boost, said UBS.

UBS rates Walmart
WMT,
-0.47%

stock a buy and raised its price target to $170 from $160.

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“With inflation ramping up and food-away-from-home spend poised to rise, we think Walmart is positioned as well as anyone to take grocery share in FY’22. Said another way, its comps should hold up better than many other large retailers.”


— Michael Lasser, analyst, UBS

Still, there are some who say that Walmart’s reliance on grocery could pose a problem.

“[W]e remain cautious on the food sectors because we expect grocery sales trends to decelerate in the 2H of 2021 as government stimulus spending runs out and consumers return to their normal eating patterns at work and school,” wrote Credit Suisse analysts in a note.

Credit Suisse says Walmart has regained any share it lost due to improved inventory. “Our sense is that Walmart intends to take a rational approach toward managing its price gaps, especially as inflation rolls through its procurement in the coming months.”

Credit Suisse rates Walmart stock at outperform with a target price of $150.

GlobalData said Walmart “just about” held on to its grocery market share, but ought to set its sights on general merchandise.

“In our view, it is critical that Walmart wins the online battle in food and, as such, it needs to double down on investing in and developing its multichannel proposition,” wrote Neil Saunders, managing director at GlobalData. “However, at the same time, Walmart must also advance its non-food penetration online, including among younger consumers.”

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Walmart Chief Executive Doug McMillon said this was a focus, using its recent acquisition of the Zeekit virtual fitting room platform as an example.

Walmart’s technology upgrades will help it in the grocery business going forward, according to MKM Partners.

“The biggest complaints (via Yelp!) are in-store service levels and experience,” wrote MKM Executive Director Bill Kirk in a note.

“E-commerce adoption largely commoditizes those issues. The more commoditized food retail becomes, the more advantageous Walmart’s supply chain leadership and e-commerce availability are. Over 70% of Walmart U.S. capex is on e-commerce and supply, far outspending peers’ aggregate capital spend (across all categories),” said Kirk.

MKM rates Walmart stock at neutral and raised its fair value estimate to $152 from $141.

Walmart stock has slipped 1.6% for the year to date while the Dow Jones Industrial Average
DJIA,
+0.36%

has gained 10.8%.

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