Wal-Mart's E-Commerce Investments Paying Off, However Modestly

At a time when Wal-Mart Stores Inc WMT bulls were cheering for the retail giant’s strong online sales numbers for the holiday quarter, Stifel is not that impressed and prefers to remain on the sidelines.

Wal-Mart's Performance

Wal-Mart delivered a surprisingly impressive 29 percent rise in e-commerce sales during the critically-important holiday shopping season, driven by Jet.com. Not only does Wal-Mart’s 29 percent online sales growth top the overall e-commerce market growth rate of 15.6 percent in 2016, it also topped Amazon’s 2016 North American sales growth rate of 25.2 percent.

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Analyst Commentary

But, analyst Mark Astrachan maintains his Hold rating on the shares, saying investment returns in e-commerce have improved, but at a modest pace, implying that the analyst wants more strong performance in that space.

Though e-commerce positively benefited Wal-Mart U.S. comp by 0.4 percent, it was a slight sequential deceleration versus 0.5 percent in the third quarter.

However, the analyst acknowledged that the result assuaged near-term investor concerns over a weak Holiday 2016 season and share loss online and to Amazon, in particular.

“That said, we think Wal-Mart likely needs to sustain investment at heightened levels, constraining EPS growth,” Astrachan wrote in a note.

However, the analyst raised his F2018 and F2019 EPS estimates to $4.28 and $4.50, respectively, reflecting modest improvement from better anticipated sales growth across Wal-Mart's three business segments — U.S. stores, Sam's Club, and International.

At last check, shares of Wal-Mart were up 0.60 percent to $71.89. The analyst also lifted his target price to $72 from $70.