Citi: We messed up on Walmart, buy it because it can compete with Amazon

  • Citi Research raises its rating for Walmart shares to buy from neutral, citing the company's e-commerce progress.
  • "WMT's ecommerce operations are emerging as a true challenger to Amazon," the firm says.
An employee pushes carts of empty boxes for customer orders at the Jet.com Inc. fulfillment center in Kansas City, Kansas.
Daniel Acker | Bloomberg | Getty Images
An employee pushes carts of empty boxes for customer orders at the Jet.com Inc. fulfillment center in Kansas City, Kansas.

Wall Street rarely talks about its mistakes, but Citi Research admitted in a note to clients that it messed up with its previous call on Walmart.

Citi Research raised its rating for Walmart shares to buy from neutral, citing the company's e-commerce progress.

"We sat on the sideline with this name in '17, which proved to be a big mistake. Despite the stock's run-up, we think there is even more to come, particularly considering HD and COST are trading at a premium to WMT," analyst Kate McShane wrote in a note to clients Monday. "Our belief that its aggressive omnichannel strategy will continue to drive significant sales growth and WMT's ecommerce operations are emerging as a true challenger to Amazon, both factors that could fuel further multiple expansion."

Walmart shares were up about 1 percent Tuesday morning after the report.

The retailer is one of the market's best-performing large-cap stocks this year, rallying 42 percent through Monday versus the S&P 500's 20 percent gain.

McShane predicts Walmart will be able to report better-than-expected sales and profit margin results in the second half of 2018 due to "supply chain efficiencies" and its recent acquisitions.

As a result, she increased her fiscal 2019 earnings per share estimate for the retailer to $4.73 from $4.57.

Walmart's "grocery offerings, everyday-low-price positioning and increasingly-seamless integration of store-based and digital selling will ensure consistent B&M [brick and mortar] traffic trends," she wrote.

The analyst raised her price target for Walmart shares to $117 from $106, representing 20 percent upside to Monday's close.

— CNBC's Michael Bloom contributed to this story.