Walmart Earnings: Strong Year Capped Off by Continued Market Share Gains, but Shares Look Pricey

We plan to modestly raise our $58 per share fair value estimate on wide-moat Walmart following its strong fiscal 2025 fourth-quarter earnings, as we expect the firm to increase profits faster than sales for the foreseeable future. Results closely aligned with our forecast, as the retailer's low prices and convenient omnichannel offerings translated into continued share gains in its domestic market. Double-digit growth in high-margin profit streams such as advertising and membership income helped drive a robust 10% increase in adjusted earnings per share to $0.66 (slightly below our $0.68 estimate). Despite Walmart's continued outperformance relative to the retail industry, investors pushed shares down about 6% during intraday trading on Feb. 20. We surmise that underwhelming guidance for fiscal 2026 was the primary culprit for the selloff, as management expects EPS to land in a range of $2.50-$2.60 next year, landing below our $2.76 estimate. We remain optimistic about Walmart's ability to increase market share and expand margins longer term (we forecast a midcycle operating margin of about 5.5%, up from 4.4% in fiscal 2025) but continue to view shares, trading around 38 times next year's expected earnings, as overvalued.