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

Walmart released its fiscal second-quarter 2027 earnings report on Aug. 20. Here’s Morningstar’s take on Walmart’s earnings and stock.

Key Morningstar Metrics for Walmart

• Fair Value Estimate
  : $81.00
• Morningstar Rating
  : ★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

What We Thought of Walmart’s Fiscal Q2 2027 Earnings

Walmart’s quarter included US comparable sales growth of 2.6% on traffic and ticket growth of 1.5% and 1.1%, respectively. Adjusted operating income grew 10% when excluding a 7% boost from tariff refunds. Shares sank 9% on Aug. 20 after the results.

Why it matters: While Walmart US’ comparable sales decelerated (seeing their lowest level since 2020), we believe the firm’s expanding digital ecosystem, marketplace density, and commitment to low prices allow it to defend traffic, share of wallet, and profitability against competition.

• We don’t believe the sales slowdown is entirely demand-driven. Although pharmacy pricing legislation (implemented in January) acted as a 125-basis-point headwind in the quarter, core categories’ comparable sales held around 3%-4%.
• We forecast Walmart US comparable sales to average 4.2% annually over the next decade. This trajectory is underpinned by its unmatched scale and low-price leadership, offering a vast product assortment that caters to financially stretched consumers across income cohorts.

The bottom line: We retain our $81 fair value estimate on wide-moat Walmart. We believe shares are overvalued even after the selloff.

• In our view, the market assumes high-margin advertising and memberships will permanently lift operating margins well above 6% historical peaks. We view this as unrealistic, as persistent mix headwinds from low-margin grocery and fierce industry competition stand to cap gains.

Key stats: Global advertising revenue grew 38%, and membership income rose 17%. We see these high-margin revenue streams as providing dry powder to profitably defend traffic and maintain price gaps relative to conventional grocers.

• We forecast high-margin alternative revenue streams to reach nearly 41% of operating profit by fiscal 2036, up from over 25% in fiscal 2026. This mix shift offsets a declining profit contribution from core US merchandise, which we project will fall to just under 50% from roughly 62%.

The following are excerpts from Morningstar’s company report on Walmart.

Fair Value Estimate for Walmart

With its 2-star rating, we believe Walmart’s stock is moderately overvalued compared with our long-term fair value estimate of $81 per share. We have raised our fair value estimate for Walmart to $81 per share from $70, primarily reflecting an upgraded long-term growth and margin profile for its global advertising business. Our updated valuation implies a fiscal 2027 EV/adjusted EBITDA multiple of 13.5 times. We forecast US revenue to grow at a 4.5% CAGR supported by modest ticket gains and resilient traffic trends.

On a consolidated basis, we forecast 4.6% consolidated revenue growth and an operating margin rising from 4.3% in fiscal 2026 to 5.9% by fiscal 2036, driven by automation efficiencies and scaling high-margin revenue. We expect COGS as a share of revenue to decline 70 basis points as procurement and supply chain improvements take hold while SG&A falls 90 basis points through fixed-cost leverage and productivity gains, reflecting genuine efficiency improvements rather than structural cost cuts.

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.

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.

Coverage metrics underscore its balance sheet heft. The company’s 10-year interest rate coverage ratio has ranged from 13 times to 20 times (averaging 16 times), evidencing that even during periods when margins are pressured, operating income has comfortably serviced obligations. This cushion enables Walmart to withstand competitive intensity without jeopardizing its strategic agenda.

Cash flow generation further reinforces this strength. Free cash flow has averaged more than $16.6 billion for the last decade (2.9% of sales), enabling Walmart to comfortably reinvest in infrastructure, technology, and supply chain. 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). Our forecast assumes Walmart defends its low double-digit share in general merchandise and holds its online grocery leadership through further online marketplace penetration; deviation from this path could pressure both revenue growth and margins.

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 Irza Waraich.