After Earnings, Is Walmart Stock a Buy, a Sell, or Fairly Valued?

Walmart released its fiscal first-quarter earnings report on May 21. Here’s Morningstar’s take on Walmart’s earnings and stock.

Key Morningstar Metrics for Walmart

• Fair Value Estimate
  : $70.00
• Morningstar Rating
  : ★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

What We Thought of Walmart’s Q1 Earnings

Walmart’s first-quarter results included 7.3% net sales growth and adjusted EPS of $0.66 (up 8.1%). Adjusted operating income grew 5%, navigating an incremental $175 million fuel cost hit, while global e-commerce and advertising revenue surged 26% and 37%, respectively.

Why it matters: As the consumer begins to feel more stretched amid macroeconomic pressures, we believe Walmart US’ six-quarter-high traffic growth (3%) indicates that the firm’s value proposition continues to resonate deeply as inflation-weary households seek relief and consolidate shopping trips.

• High-margin streams like Walmart Connect (up 36%) and membership fees (up 17%) are reshaping the profit mix. Together with marketplace growth, these alternatives accounted for roughly one-third of operating income, and we forecast they will reach nearly 40% by decade’s end.
• We are encouraged by the 20-basis-point expansion in gross margin to 25.1%, which was aided by general merchandise share gains. However, we anticipate mix pressure will return as the fading positive impact of tax refunds shifts spending back toward lower-margin grocery and essentials.

The bottom line: We are raising our fair value estimate for wide-moat Walmart to $70 per share from $62, primarily reflecting a lower cost of capital estimate under our updated framework. Shares fell about 7% on May 21 but remain overvalued at 70% above our fair value estimate.

• We lowered our weighted average cost of capital estimate to 7.0% from 7.3%. The change does not reflect a new view of Walmart’s business, but rather, a more refined expression of our existing risk assessment.
• Even after the selloff, we posit that the market is pricing in an operating margin expansion to levels above historical peaks of 6% through outsize gains in advertising and memberships and a significant rebound in discretionary mix, which we view as unlikely amid intense competition.

Fair Value Estimate for Walmart

With its 1-star rating, we believe Walmart’s stock is significantly overvalued. We have raised our fair value estimate for Walmart to $70 per share from $62, primarily reflecting a lower cost of capital estimate under our updated discount-rate framework. Under this updated framework, we lowered the weighted average cost of capital estimate to 7% from 7.3%. This change does not reflect a new view of Walmart’s business, but rather a more refined expression of our existing risk assessment. Our revised valuation implies a fiscal 2027 EV/adjusted EBITDA multiple of 12 times. On a consolidated basis, we forecast 4.1% consolidated revenue growth and an operating margin rising from 4.3% in fiscal 2026 to 5.6% by fiscal 2036, driven by automation efficiencies and scaling high-margin revenue.

Read more about Walmart’s fair value estimate.

Economic Moat Rating

We assign Walmart a wide moat grounded in its industry-leading cost structure and stout brand intangible assets. We surmise that these competitive advantages will remain durable due to Walmart’s unmatched scale, operational discipline, and continuous reinvestment in technology and infrastructure. These advantages are most evident in the company’s US operations, while Sam’s Club demonstrates more modest but defensible strengths. In contrast, Walmart’s international arm lacks sufficient scale and differentiation in most markets to earn an economic moat, in our view.

Quantitatively, Walmart’s consolidated return on invested capital has consistently exceeded our estimate of its weighted average cost of capital (7%), with a five-year average return of 14.7%. We believe that as Walmart continues to invest in strengthening its competitive position, its ROIC will remain above its WACC for at least the next two decades.

Read more about Walmart’s economic moat.

Financial Strength

We see Walmart’s financial health as exceptionally durable, anchored by a conservative capital structure and strong free cash flow generation. The firm balances one of the largest revenue bases in the world with a debt profile that is both manageable and deliberately structured to support reinvestment.

Walmart’s debt/EBITDA ratio was a modest 1.0 times at the end of fiscal 2026 (down from an average of 1.2 times over the past 10 years and far lower than no-moat peer Target’s 2.4 times level), reflecting a balance sheet tilted toward operating efficiency rather than financial leverage. Financial flexibility is further enhanced by its $10.7 billion in cash and $15 billion in committed lines of credit, and its $45 billion in debt is mainly due post-fiscal year 2029, limiting refinancing risk. Coverage metrics underscore its balance sheet heft.

Further, the firm has increased dividends each year (3.8% over the past decade), and we expect 7.1% growth through fiscal 2036. We also anticipate elevated levels of capital expenditures (3.7% of sales in fiscal 2026) to normalize closer to the 10-year historical average of 2.5% by fiscal 2030, freeing capacity for additional shareholder returns.

Read more about Walmart’s financial strength.

Risk and Uncertainty

We assign Walmart a Medium Uncertainty Rating, reflecting the stability of its grocery-led business but acknowledging structural risks that could reduce cash flow growth. The most significant risk to the business stems from competition in general merchandise, where Amazon, Shein, Temu, and other digitally native retailers have been eroding Walmart’s US market share (11.1% compared with 14.2% in fiscal 2021). E-commerce adoption is a double-edged sword. Walmart’s investments in fulfillment centers, automation, and third-party marketplace capabilities require scale to cover elevated fixed costs. Should consumer adoption plateau, the company could be left with underutilized infrastructure, which would dilute profitability. Regulatory and legal risks also persist.

Tariffs on imported goods, particularly apparel and electronics, could dampen discretionary demand if higher prices are passed on to the consumer. Antitrust scrutiny around Walmart’s use of shopper data or ad placement within its retail media platform could lead to regulatory action, reducing Walmart Connect’s monetization potential. On the environmental, social, and governance front, Walmart’s vast supply chain, where 90% of its emissions are tied to supplier logistics and production outside of its direct control, leaves it exposed to labor practices, deforestation, and emissions disclosure risk, all of which carry reputational and/or financial consequences if mishandled.

Read more about Walmart’s risk and uncertainty.

WMT Bulls Say

• Walmart Connect is profitably compounding sales at a high-double-digit rate, with 70% operating margins, creating a durable profit stream as it captures retail media advertising spending using real-time data from 270 million weekly shoppers.
• Expansion of private-label penetration boosts margins while reinforcing Walmart’s value message and defending its share.
• Walmart+ adoption drives nearly twice as much shopping frequency per member, reinforcing share gains with fuel, delivery, and media perks appealing to higher-income households.

WMT Bears Say

• Digitally native rivals like Amazon, Shein, and Temu could erode wallet share in discretionary categories, which make up 25% of Walmart’s sales and carry higher margins than grocery.
• Rising employee wages (up 30% in five years) and raw material inflation could outpace productivity gains, constraining margin improvement.
• International operations may fail to scale and realize the same level of brand resonance in the US, with past failures in the UK, Germany, and Argentina, which would depress returns on invested capital.

This article was compiled by Jillian Moore.