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Walmart takes on Amazon
Walmart takes on Amazon 04:11

Amazon (AMZN) appears invulnerable in both its leadership and dominance in retailing, thanks to its massive sales online. But one company determined to catch up is Walmart (WMT) -- no matter how challenging and seemingly impossible some people think that is. Often described as the world's largest retailer, Walmart is quietly trudging up on Amazon as it increasingly participates in the booming e-commerce business.

"E-commerce growth remains impressive, with Walmart US sales increasing 50 percent," noted Robert Drbul, analyst at investment firm Guggenheim Securities, and "we continue to believe growth in the 40 percent range in 2018 is achievable." For the fourth quarter, Drbul expects Walmart's online sales contribution to increase further.

One of the major concerns surrounding Walmart was the possibility that it may miss out on the e-commerce sales phenomenon, said RBC Capital analyst Scot Ciccarelli in a recent report to clients. But that has changed since its $3 billion acquisition of last year, he noted. That deal has enabled Walmart to outpace Amazon in e-commerce expansion, with a 50 percent growth rate this year. Its online sales totaled $11.5 billion in the US this year.

Michael Lasser, analyst at UBS, said Walmart's third-quarter results had a lot to like, including its core US comparative growth, which reached its highest level in years. Plus, the company showed the ability to "maintain much of its recent momentum in e-commerce, growing both sales and GMV [gross merchandise value] by 50 percent for the third consecutive quarter," said the analyst.

Walmart vs. Amazon 01:26

A big plus for the company is analysts' expectation that it will be a strong rival to Amazon. "Walmart has shown that it's more than a long-term survivor but will be competitive with Amazon, and this narrative is worth a high multiple," said Christiopher Horvers, analyst at JPMorgan Securities.

The company is forecasting 40 percent e-commerce growth next year. And Horvers noted that store sales need to be only "ever so slightly positive" to meet Walmart's targets.

Shares of Walmart has been climbing impressively so far this year, leaping from $68 a share in February to just under $98 as of Tuesday's close. 

Daniel Binder, analyst at Jefferies who rates the stock a "buy," has a price target of $110, based on 22 times his earnings estimate for fiscal 2019 of $4.90 a share, which is above the three-year average of 17.8 times. Walmart is coming off a period of heavy investment spending, he noted, and he believes there's potential for upward earnings revisions ahead. 

Joseph Agnese, equity analyst at CFRA Research, figures the company's plans to increase investments through fiscal 2019 will focus on e-commerce and digital capabilities, improving shoppers' in-store experience as well as "expanding online offerings and speeding up delivery," said Agnese. 

Rating Walmart as a "strong buy," with a price target of $108 a share, Agnese expects earnings growth over the next 12 months to benefit from more favorable food price inflation and increased store traffic due to improved customer experiences. He sees net sales in fiscal 2018 likely rising 2.8 percent, thanks to an estimated 2.1 percent sales gain at US comparable stores (or stores open a year or more) "and an acceleration in e-commerce sales, partially offset by store closures." Walmart revenues in fiscal 2017 totaled $485.87 billion.

Key factors generating comparable-store sales growth, said Agnese, include improved in-stock levels, a more aggressive pricing strategy, better customer service -- and increased convenience from growth in the e-commerce product offerings, including grocery pickup capability. Agnese projects Walmart will earn $4.43 a share in fiscal 2018 ending Jan. 31, up from fiscal 2017's $4.38. For fiscal 2019, he expects earnings of $4.70 a share. 

One more encouraging aspect about investing in Walmart is the stock's steadily upward direction since early last year, largely reflecting the company's reputation as a reliable performer in a highly volatile and competitive industry.

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