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

At a time when Wal-Mart Stores Inc (NYSE: 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.