7 Ways Wal-Mart Stock Can 'Work Again'

• In a report issued Thursday, Morgan Stanley analysts Simeon Gutman and Joshua Siber proposed a few ways to fix Wal-Mart Stores, Inc. (NYSE: WMT) ahead of the Investment Community Meeting next Wednesday.
• The firm maintained an Equal-Weight rating on the stock, while trimming its price target from $73.00 to $68.00.
• Shares of Wal-Mart were up about 0.5 percent on Thursday.

Morgan Stanley recently conducted its AlphaWise survey, which showed that Wal-Mart has goodwill with customers. The analysts believe the company “should make the most of it,” and lay out a few ideas that could put this “out-of-favor stock back on track.”

The Wider Thesis

According to the report, the analysts believe the medium-term setup for the stock is not particularly compelling, especially given that estimates for fiscal 2017 look to high, while the company really looks poised to deliver further margin downside. They also see comps decelerating over the medium term.

Over the longer term, Wal-Mart faces one fundamental challenge: “managing the transition from a higher-margin, higher-return store-based business, to what today is a lower-margin model, leveraging online.”

How To Get Back On Track

Gutman and Siber believe the stock could work again. Below are seven strategies Morgan Stanley proposes for the company to get back on its feet:

• 1) Expand price leadership: Wal-Mart is already conceived as a price leader, but the gap is not very big.
• 2) Consider increasing not only wages, but also the number of employees per store.
• 3) Put U.S. Supercenter Openings on pause.
• 4) Consider spinning off Sam's Club.
• 5) Narrow its international footprint, focusing on China, UK, Mexico and Canada.
• 6) “Accelerate omni-channel investments and provide a roadmap.”
• 7) Increase its dividend yield and buyback programs.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.