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Oppenheimer downgrades Walmart because the retailer’s online sales target is a ‘stretch’

Key Points
  • Oppenheimer lowers its rating to perform from outperform for Walmart shares, citing the company's slowing online sales growth.
  • "We are increasingly concerned that with recent key drivers of outsized e-commerce sales expansion potentially waning and given our now more muted EPS growth expectations, the valuation at which shares trade could prove capped," the firm's analysts write.
An employee scans a Mattel Barbie Dream House for a customer at a Walmart location in Burbank, California.
Patrick T. Fallon | Bloomberg | Getty Images

Walmart shares will no longer beat the market as investors question the firm's e-commerce prospects, according to one Wall Street firm.

Oppenheimer lowered its rating to perform from outperform for Walmart shares, citing the company's slowing online sales growth.

"We are increasingly concerned that with recent key drivers of outsized e-commerce sales expansion potentially waning and given our now more muted EPS growth expectations, the valuation at which shares trade could prove capped," analysts Rupesh Parikh and Brian Nagel wrote in a note to clients Friday. "As a result, we no longer see the case for outperformance."

The retailer's shares declined 1.2 percent Friday after the report.

The analysts reduced their price target to $93 from $110 for Walmart shares, representing 4 percent upside to Thursday's close.

Parikh and Nagel noted Walmart's U.S. e-commerce sales growth slowed to 23 percent in its fourth quarter versus 50 percent growth in its third quarter.

"Per our analysis, we look on FY18 guidance for +40% domestic online sales growth as more of a stretch. Indications of softer (albeit still strong) e-commerce growth are apt to limit the potential for shares to garner an above-market multiple," they wrote.

The analysts said Walmart trades at a slight price-to-earnings ratio valuation premium to the S&P 500, which is rare historically.

"Over the past ten-plus years, WMT has traded at an above-market multiple only three times, including once during an economic downturn and more recently on e-commerce enthusiasm," they wrote. "As the potential for outsized growth at WMT wanes, we are concerned that shares could be capped at a market valuation."

Walmart did not immediately respond to a request for comment.

The company's shares rose 26 percent in the past 12 months through Thursday versus the S&P 500's 12 percent gain.

— CNBC's Michael Bloom contributed to this story.

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