Piper Sandler analyst Edward Yruma recently upgraded Walmart Inc.’s stock, highlighting the retailer’s ability to offer competitive prices and attract more customers. Yruma’s research note emphasized that while higher prices had initially benefited Walmart during a period of inflation, lower prices now play a crucial role in its success. By undercutting rivals such as Kroger Co., Meijer, and Amazon Fresh, Walmart can continue to expand its customer base.
Yruma noted that as inflation continues, wealthier consumers are more likely to “trade down” by seeking out cheaper alternatives. Walmart’s sharp focus on affordability positions the company favorably, contributing to its potential for growth. As a result, Yruma raised his price target on Walmart’s stock from $145 to $210.
To further support his analysis, Yruma’s team conducted a comprehensive evaluation of approximately 390 grocery items at Walmart that were on “rollback.” This term refers to when suppliers temporarily reduce prices for retailers, who then sell the products at a lower cost. The analysis revealed that Walmart’s rollback prices were 19% lower than the regular prices charged by Kroger and Meijer, and 29% lower than Amazon Fresh.
With this promising data, Yruma anticipates the potential for more rollbacks in the future, further solidifying Walmart’s position. Despite a minor dip in stock prices (0.2%) during early-afternoon trading on Tuesday, Walmart remains well-positioned to thrive with its ongoing commitment to affordable pricing.
Walmart’s Rollbacks and Price Leadership
According to recent research by Piper Sandler, Walmart is experiencing a significant increase in rollbacks. This trend is expected to intensify, as more customers prioritize saving money on groceries over making debt repayments. Notably, groceries have become one of the top areas of increased spending for 55% of respondents in the past 2-3 years.
Walmart’s strong price leadership becomes even more prominent when they implement rollbacks. As the overall rate of price increases in the U.S. has slowed down, customers are still burdened by high prices for basic necessities. In response, retailers have reduced prices on non-essential items like clothes, toys, and electronics, which have experienced decreased demand.
In addition, based on a random sample of about 50 items, it was found that Walmart’s private-label products are approximately 37% cheaper than similar items from national brands. This significant price difference contributes to Walmart’s competitive advantage and attracts cost-conscious consumers.
Furthermore, there is growing appreciation for the turnaround happening at Sam’s Club. The company plans to open more than 30 new clubs and five new distribution centers in the coming years. It also intends to reinvest in its private-label brand called Member’s Mark. This reinvestment has proven to be a key driver of better business performance for Sam’s Club.
Overall, Walmart’s shares have shown a promising growth of 10.6% this year, surpassing the broader market represented by the S&P 500 index, which has increased by 19.5% over the same period. This further reinforces Walmart’s position as a successful and reliable retailer in the market.
