Wal-Mart Storesshares fell in trading Thursday after Merrill Lynch downgraded the retailer to "sell" from "neutral," saying its operating margins are likely to compress further.
"Following years of weak comps, declining new door productivity and aggressive expense management, margin erosion in the core U.S. division looks set to continue, and may in fact accelerate in the years ahead," wrote Merrill Lynch analyst Virginia Genereux in the note.
She said "new door productivity" is a measure of the sales generated by a new store relative to the comparable store base.
Genereux outlined a "best case scenario" in which Wal-Mart's earnings growth would slow to the mid- to high-single digit percentage range and the stock would trade in the high $30s.
She also outlined a "possible worst case scenario" in which comparable-store sales would turn negative and earnings declines would accelerate, with the stock dropping to the low $30s.
Wal-Mart shares fell 69 cents or 1.6 percent to $43.50 in late morning New York Stock Exchange trading.
Analysts and investors have been pushing Wal-Mart to rein in U.S. expansion plans as sales gains at its existing stores, known as comparable store sales, have slowed and it has saturated many markets.
In its last fiscal year, its U.S. comparable store sales notched their smallest increases since the retailer began reporting such figures in 1980.
In June, Wal-Mart said it would cut the number of supercenters it plans to open this year by as much as 30 percent to try to boost sales at U.S. stores.