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Walmart Set Up Favorably Amid Low Expectations, Morgan Stanley Says

05/11/2021 08:14

12:09 PM EDT, 05/11/2021 (MT Newswires) -- Low expectations for Walmart (WMT) are setting up a favorable backdrop for the company, which is facing the "toughest" comparison in fiscal Q1 for the year, Morgan Stanley said in a Tuesday note.

Morgan Stanley analysts pointed to the possibility of Walmart becoming "more aggressive" on pricing amid reports that it is not happy with its 2020 market share position. Moreover, inflation in commodities is picking up and consumer packaged goods are passing higher costs over to retailers, which could hurt Walmart's US gross margins and presents the biggest risk to the fiscal 2022 guide calling for slight US EBIT growth, according to the report.

"There should be more levers to pull this year with COVID costs rolling off alongside continued elevated sales volumes," Morgan Stanley said. "Thus we think WMT can manage to its guide and deliver EBIT growth despite inflationary pressures and planned reinvestments in supply chain and wages."

Morgan Stanley projects US comparable sales of at least 3% to 4% versus consensus at 0.8%. "A 3-4% comp isn't exactly flattering on the surface, especially next to [Target Corp. (TGT)] which could end up doing a 20%+ comp in Q1," the brokerage added.

Fiscal Q1 EPS is expected to come in at $1.19 compared with consensus of $1.20.

Morgan Stanley maintained Walmart's overweight rating with a $154 price target.

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