To be sure, no guarantees in the capital markets exist. That said, targeting big-box retail giant Walmart (NYSE:WMT) as a reasonably safe road to take arguably represents a viable idea. Given its supremely relevant business and recent support from smart money, the retailer should perform well against rising economic uncertainties. Therefore, I am bullish on WMT stock.
A Rough Consumer Backdrop Bodes Well for WMT Stock
While bad news is usually just that – bad news – when it comes to understanding Walmart’s broader bullish thesis, one needs to look at the picture fourth dimensionally. Sure, the face-value backdrop of high inflation along with massive credit card debt doesn’t appear particularly pleasant. However, because Walmart provides essential goods at everyday low prices, WMT stock might be intriguing.
Effectively, the big-box retailer offers a one-stop shop for numerous needs, from groceries to common household goods to clothing and accessories. As well, it stocks its shelves with various consumer discretionary products. By not having to drive around from one store to another, households over time can take advantage of this convenience.
To be sure, mass layoffs represent a troubling headwind for practically all retailers. However, even if the pink slips start flying over the next several months, Walmart may still be in a position to benefit from a relative standpoint. Basically, consumers who previously shopped at pricier retailers may trade down to Walmart.
Even under more robust circumstances, consumers would frequently shop at Walmart for certain deals. If the consumer economy worsens from here, the company may see its total addressable market stabilize, if not slightly increase on a net basis.
Unless households experience a truly catastrophic loss of income, they will continue to at least shop for essentials. Further, there would be no shame involved in using government assistance programs at Walmart stores.
Institutional Traders Appear Bullish on Walmart
Another factor that swings the needle in support of WMT stock is the activity of institutional investors. Recent data shows big block trades with bullish implications lighting up the derivatives market, seemingly boding well for the retailer.
Specifically, late last week, volume spiked for the $160 puts with an expiration date of September 15, 2023. A large chunk of this transaction showed up on an options flow screener, which filters for big block trades likely made by institutions. Given the strike price, the sellers of the puts appear to be gambling that WMT stock won’t drop below $160. Today, shares closed at $164.52.
Looking ahead, the aforementioned options flow indicator also shows three big block trades expiring on June 21, 2024: sold $155 puts, bought $165 calls, and sold $140 puts. All three transactions appear bullish. In the case of the puts, the strike prices may represent a perceived floor. Otherwise, if these contracts become in the money (ITM), the put sellers would be obligated to buy back WMT stock at the listed strike price.
For the call option, the reasoning behind it appears straightforward. If WMT stock exceeds $165, call holders would have the right to acquire Walmart shares at the listed strike price.
Also, given that the open interest is so high – 2,740 contracts open – the institutional investors holding onto this contract likely expect greater returns. Of course, it’s speculation, but the open interest has been steadily rising for this call. This possibly indicates a high-conviction trade.
Financials Point in the Right Direction
If you need more confirmation, just look to the analysts. Presently, no one rates WMT stock a Sell, and that largely has to do with Walmart climbing a wall of worry. Notably, the company posted better-than-expected results for its second quarter.
Per TipRanks reporter Radhika Saraogi, adjusted earnings per share came in at $1.84, beating the Street’s consensus view of $1.71 per share. On the top line, revenue landed at $161.6 billion, above the estimate calling for $160.22 billion.
What is the Price Target for WMT Stock?
Turning to Wall Street, WMT stock has a Strong Buy consensus rating based on 24 Buys, four Holds, and zero Sell ratings. The average WMT stock price target is $177.96, implying 8.2% upside potential.
The Takeaway: WMT Stock is as Close to a No-Brainer as You Can Get
While all investments carry downside risk, WMT stock is arguably as close to a no-brainer as you can get. First, the fundamentals make perfect sense, with Walmart selling essential products at everyday low prices. Second, evidence points to institutional investors bidding up WMT. Third, analysts justifiably appreciate the big-box retailer for beating expectations amid rising consumer pressures.
