Bullish on Walmart, short term long tradeI have been inactive here for past 2 years since I last post about FX picks and market analysis. Due to nature of job and industry I try to avoid conflict of interest, anyway below are my analysis of Walmart.
Background about Walmart:
*Brick & Mortar Shopping Mall with about 4,700 stores (Supercenter)
*>50% revenue comes from groceries, follow by breakdowns to General Merchant, Health & Wellness and Other category.
*2013-2015, Walmart allocated 50% capital to new stores but in 2020 it has reduced to <20% in new stores
*They have business exposure in US, China (Sam's Club) and India (Flipkart)
*Target customer in US (low-middle income), China (middle to high income)
*Competitor = Amazon, Reliance, Costco, Target
*Defensive stock
Through the *ugly help* of Covid19, Walmart is able to accelerate their e-commerce investment and adoption rate, specially on their Walmart+ subscription plan which started 7th July (share price shot up 7%-8% intraday). Walmart Plus membership will reportedly include same-day delivery of groceries and other merchandise sold by Walmart. Think of Walmart Plus as the retailer's answer to Amazon Prime. It is a new membership program designed to compete with Amazon Prime. For a traditional brick & mortar business to transit and evolve alongside with technology adoption, I am pretty positive of Walmart's Omnichannel solution strategy (is a multichannel approach to sales that seeks to provide customers with a seamless shopping experience, whether they're shopping online from a desktop or mobile device, by telephone, or in a brick-and-mortar store.) In July 29 they release a new online services "Ask Sam"; accommodating to customer's specify request such as price checking and locating fine products. While not forgetting about covid19's preventive measures they also added Curb side pick up for customers. (Lets just view it as their social corporate governance responsibility)
Moving forward, Walmart is putting greater focus on E-commerce, growing their online platform awareness and increase market dominance over the time via acquisition/partnership with Flipkart (81% stake), JD.com (10%) and Shopify (10% stake). The deal will open Walmart's Marketplace to Shopify's small business sellers, with the goal of bringing 1,200 Shopify sellers to the marketplace this year. Back in Q1 earning report, management has highlighted U.S. ecommerce sales shot up by 74% as the coronavirus outbreak drove more shoppers to buy online and pick up outside Walmart stores, as there are currently no clear vaccine for now, I believe that online grocery shopping data will remain sticky till Q4.
Catalyst - These are some events that are in favour of Walmart's share price
1. "Amazon says it is out of stock of household items and deliveries are delayed due to coronavirus demand", although this news happened back in mid-May, however this could also translate to lost of dissatisfied customer.
2. Walmart+ vs Amazon prime. Price and services competition. (competition of market share, shift in price sensitive customer)
3. Expended operating hours from usual 8pm to 10pm
4. More calls vs put for 21 August expiry options
I see this as a strong defensive stock similarly to how other retail supermarket stocks in other countries had rallied and remain bullish on their upcoming earning report on 18th. I am expecting better than expected earnings on their core business grocery and modest decline in their other segment of the business. This should also fit a nice breakout play to $145+/-
If you are bullish on this sector but cant decide which stocks to hold why not go for both Walmart and Target with decent portion of weighted portfolio. I am vested and above are just my small sharing. Good luck stay safe.
