Analysts provide their insights on e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) and retail giant Wal-Mart Stores, Inc (NYSE:WMT) following expansion news and earnings, respectively. While one analyst believes Amazon will excel in its private label expansion efforts, the other is lukewarm on Walmart, predicting various near-term challenges in the face of increased investments.
Cowen analyst John Blackledge weighed in on Amazon following reports that the company will expand its private-label business. According to The Wall Street Journal, the company will enter new private label markets such as perishable foods and household products. Although the company has sold private label goods since 2009, they were mostly limited to consumer electronics and represented less than 1k of over 500mm SKUS on its site. The analyst notes that the products could release this month exclusively to current Prime members, which he estimates at 45 million in the U.S. and tens of millions internationally.
Blackledge believes “the news should come as no surprise” due to the extraordinary market opportunity that Consumables and Food and Beverage represents in the U.S. The analyst notes that according to his growth forecasts for the company, “selling its own private label goods seems to be the appropriate next step,” and will allow AMZN to compete with established players in the industry such as Walmart and Costco, who each have large private label businesses. Blackledge predicts a massive growth opportunity for the company, believing that Amazon could take the #2 spot in the $425 billion US consumables market by 2018 and a top 10 spot in the $795 billion US food and beverage grocery market by 2019.
The analyst reiterates an Outperform rating on the company with an $830 price target.
According to TipRanks, out of all the analysts who have rated the company in the past 3 months, 90% gave a Buy rating while 10% remain on the sidelines. The average 12-month price target for the stock is $806.17, marking a 15% upside from where shares last closed.
Wal-Mart Stores, Inc.
UBS analyst Michael Lasser commented on Walmart following the firm’s Q1:17 earnings last week. The analyst cites impressive earnings relative to Walmart’s retail peers, beating both revenue and EPS expectations. The analyst specifically highlights 1% US same store sales growth which marked its best one day return since October of 2008. He credits this earnings win due to “impressive MSD comp in Health & Wellness and LSD growth in GM.” Related, the analyst points out that cold weather has not negatively impacted the company due to its variety of products. He explains, “it serves as a reminder that WMT’s less discretionary business mix can help insulate its traffic trends (2/3 of WMT US sales come from Grocery and Health & Wellness).”
The analyst believes that in order for Walmart to continue in this direction, it must make “further execution improvements” in terms of labor investments, which should help to enhance customer experience. The analyst believes its recent investments will result in equal or above 1% same store sales growth going forward. Regarding margins, the analyst states that “1Q’s large swings in GM and SG&A were largely due to one-time issues.” He credits lower fuel costs and the “lapping” of last year’s West Coast port delays to its 65 bps increase this quarter. The analyst states that although he believes Walmart will benefit through more favorable supplier terms and the company’s partnership with McKesson for generic drugs, increased price investments should “more than offset” any gains. While he believes recent initiatives will result in top line growth, the analyst does not believe Walmart can sustain these investments and “[maintain] a steady op margin in the near-term.”
Lasser notes that Wal-Mart experienced growth of only 7% in the quarter for e-commerce, the lowest since the company began regularly reporting this metric. In order to increase online commerce next quarter, the company is exploring ways to improve customer loyalty through better shipping terms and the expansion of its online grocery business to 9 additional markets by the end of this month. However, the analyst notes that “improving its online reputation will take time, & returning to its targeted 20-30% of CAFR of an increasingly large based (13+ bn in (FY’16) isn’t likely this year.”
The analyst reiterates a Neutral rating on the stock with a $67 price target.
According to TipRanks, out of all the analysts who have rated the company in the past 3 months, 17% gave a Buy rating, 17% gave a Sell rating, and 67% remain neutral. The average 12-month price target for the stock is $71.18, marking a 2% upside from where shares last closed.