As shares rebound to all-time highs, Wall Street suddenly thinks Wal-Mart is 'playing offense' against Amazon.
Shares of Wal-Mart closed up nearly 11 percent to record highs Thursday on the heels of a big earnings beat and strong online sales growth. The company posted its single best day in nine years.
In light of the good news, a number of Street analysts have begun changing their tune on Wal-Mart. Though worries had been brewing about Amazon's dominance in retail, Baird analyst Peter Benedict believes Wal-Mart stands a fighting chance.
"With a solid foundation in place, Wal-Mart is increasingly playing offense," wrote Benedict in a note to clients. "Efforts to broaden the online assortment, improve the customer value proposition (free two-day shipping, pick-up discounts on non-store items), and enhance convenience have helped fuel the impressive ramp in U.S. ecommerce sales growth."
Wal-Mart's "becoming a powerful omni-channel force," he said.
The Arkansas-based retailer posted another quarter of remarkable growth online. Internet sales added 50 percent in the fiscal third quarter, roughly one year after the company acquired Jet.com.
But Benedict wasn't alone in his praise. Oppenheimer's Rupesh Parikh also complimented Wal-Mart's performance and bumped his price target to $105.
"Wal-Mart represents a top pick within the consumer sector," he wrote. "Accelerating grocery momentum, improving prowess online, and strengthening market share gains vs. key competitors are apt to facilitate an ongoing flow of funds into the shares."
Despite the high praise, Wall Street wasn't always this bullish. One year ago the average analyst price target on Wal-Mart hovered around $74, far below the current share price of $99, according to FactSet.
Much of the qualms in retail revolve around Amazon's impressive growth and scale. Grocery stocks fell en masse this summer after news of Amazon's bid for Whole Foods Market broke. With speculation over Jeff Bezos's next move ranging from more apparel and films to a new segment in pharmaceuticals, many brick-and-mortar retailers are bracing for another blow.
Exactly two years ago, Stifel analysts told clients that Wal-Mart had a lot of work to do if it wanted to do battle with the Amazon.
"Wal-Mart has to keep their head down, invest, and work to impress the shopper while the competitive landscape won't give them any breaks (Amazon shipping under 8 ounces and under $10 for free from Kentucky DC, Target, dollar stores, ALDI, and grocers like Kroger)."
Though the Stifel team hasn't changed its hold rating on Wal-Mart, it is impressed with the progress it sees.
"We believe Wal-Mart's continued comp growth and strong e-commerce results better position it to compete against online competitors compared to retailer peers," wrote analyst Mark Astrachan on Thursday. "The F3Q result suggests investments in price, people, and stores continue to favorably impact traffic and overall comp, in our view, and shows Wal-Mart is effectively competing in a tough retail environment."