Walmart Now Represents Attractive Buy, Saying Wells Fargo

Walmart Now Represents Attractive Buy, Saying Wells Fargo ...

Shares of Walmart (WMT) - Get Walmart Inc. Report, Target (TGT) - Get Target Corporation ReportStatement - More retailers have been hampered last week as the two companies released unexpected earnings reports.

According to Wells Fargo''s Edward Kelly, the forecast isn''t quite terrible.

While every retailer is seemingly putting a risk on earnings today, we don''t expect our other names to have as poor results as Target, according to a commentary. The market has already lowered a lot, and there is real value at current levels.

We have the arduous choice to catch a falling knife, and there is no guarantee this market has less bad results, but we see a particularly attractive opportunity in:

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Walmart.

The dollar is the goal of the year.

Dollar Generals is risky for low-income consumers, but the stock is once again discounting a lot, according to Kelly. Shares have dropped by 21% since May 16, the day before Walmart announced its earnings.

According to Kelly, Dollar Generals'' exposure to low-income consumers is enhanced by its small ticket, consumable heavy, and a trade-down form.

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Many of its customers live paycheck to paycheck, but they are under rising pressure, as a result of the increased cost of food, gas, and other essentials.

Kelly believes that Dollar General will not meet its initial comparable sales guidance. However, we don''t anticipate anywhere near the same level of unexpected markdown/supply chain pressure we received from Target, according to him.

Because of the smaller weighting for discretionary items in Dollar Generals sales (around 20%), its lack of major ticket items, and a less reliable inventory forecast coming into the year, Kelly said.

If the company reports earnings [May 26], we believe a high-single-digit percent full-year guidance reduction is possible, according to the worst case scenario. But much of that appears to be available at this point.

Bottom line: We like the stock here, especially given that expectations have dropped significantly.

Walmart is a leading provider of retail services.

Walmart has just sold out too hard. According to Kelly, quality defense is on sale here. The company''s stock has dropped 16% since May 16.

Walmart''s first-quarter update appears to be correct now, as it only reduced guidance by 5%, according to Kelly.

Despite Kelly''s earnings statement, most of its concerns (laboration, general merchandise marks, and rising fuel costs) have been or are being addressed in a timely manner.

In our request to return, the company expressed no concern about ocean freight.

Walmart has characteristics that investors should want in a defensive name at the moment, as its biggest price concerns should result in share gains as consumer trade declines. And it is in the best position to decrease vendor pricing.

Kelly claims that after Targets'' report, we do have a concern that Walmart would not have reduced guidance enough.

The stock price is already pointing to this danger. Kelly claims that we would be buyers of WMT at current levels. Walmart was then trading at $119.50. It recently stood at $123.95.

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