Walmart could be the 'next tech stock' with Amazon competitor set to launch, says Morgan Stanley

Published Mon, Jul 13 202011:16 AM EDT

(This story is for CNBC Pro subscribers only.) Big box retailer Walmart is in the running to be the "next tech stock," according to Morgan Stanley. The Wall Street firm, which has an overweight rating on Walmart, said the stock can continue to rally thanks to Walmart+, the company's e-commerce business slated to compete with Amazon Prime. "Companies with subscription models like AMZN, COST, NFLX & SPOT trade at higher multiples than WMT, thus Walmart+ opens the door to a higher multiple," Morgan Stanley equity analyst Simeon Gutman told clients on Monday. Shares of Walmart have jumped nearly 10% in 2020, while the broader market took a beating from the coronavirus recession. The big box retailer benefited from the millions of Americans stocking up on food and household items during the government mandated shutdown. Walmart's stock got another boost last week when Vox's Recode reported Walmart plans to roll out a subscription-based service called Walmart+ in July. This is Walmart's answer to Amazon Prime and the membership program will cost $98 per year and include same-day delivery of groceries, fuel discounts at Walmart gas stations and other perks, according to the Recode report. "The likelihood of WMT adding and retaining members seems high," said Gutman. "To the extent that WMT is successful, similar to AMZN's success with Prime in driving direct/repeat customers ... it can also have powerful implications for customer lifetime values and long-term profitability." Gutman also noted that tech companies and e-retailers often trade at higher multiples than regular retailers. "A subscription model could change the conversation for WMT, allowing it to invest more freely into the business and earning a higher multiple in doing so," said Gutman. Morgan Stanley also said Walmart's rollout of Walmart+ should not cause the company to lower its earnings guidance of mid-to-single-digit earnings growth. "The company has demonstrated ability to balance investments with growth through cost productivity efforts," added Gutman. Morgan Stanley has a $140 per share price target on Walmart, implying a more than 6% rally from its current levels. — with reporting from CNBC's Michael Bloom.

A customer pays for her groceries after shopping at a Walmart store ahead of the Thanksgiving holiday in Chicago.

Kamil Krzaczynski | Reuters

(This story is for CNBC Pro subscribers only.)

Big box retailer Walmart is in the running to be the "next tech stock," according to Morgan Stanley.

The Wall Street firm, which has an overweight rating on Walmart, said the stock can continue to rally thanks to Walmart+, the company's e-commerce business slated to compete with Amazon Prime.