Goldman Sachs Upgrades Walmart, Shares Hit Record High

Walmart Stores Inc. shares hit a fresh record high after analysts at Goldman Sachs upgraded the stock, suggesting that US tax reform means major savings for the retail giant.

Walmart has made itself a strong strategic position in selling consumables to middle-income buyers in small markets, said the New York investment bank. That strategy suggested that Walmart will remain “very much in control of its own destiny,” even in a retail landscape subjected to “significant disruption.”

The bank raised its rating on Walmart from “neutral” to “buy,” and its price target was raised to $117, up 14% from current levels. Walmart was also added to Goldman’s “Americas Conviction List,” a group of the bank’s favorite stocks to buy.

Shares of Walmart climbed 1.56% to finish at $104.30. Its shares hit a record high of $104.94 at the start of trading on Thursday.

Goldman downgraded the stock last November, but an improving economic backdrop is expected to support Walmart’s higher valuations, especially as tax reform is fully realized, said Matthew Fassler, analyst at Goldman Sachs.

Its mass market appeal would grow even larger as income growth strengthens and personal tax reform works in consumers’ favor. Tax reform will offer an average benefit of $1,018 per tax payer filing, and tax relief as a percentage of income for the $40,000 to $200,000 bracket will be between 1% and 1.8%, Goldman said.

Moreover, Goldman expects modest same-store sales growth and an increase in earnings to $5.40 a share for 2018 and $5.73 for 2019, each up 5 cents on stronger sales and more favorable foreign exchange environment. It is expected that Walmart’s earnings will experience a 12% impact from tax reform compared to an average of 19% for Goldman’s coverage.

“We expect the mass market to benefit from stronger income growth and from personal tax reform,” said Fassler.

Another analyst was also bullish on Walmart in 2018. Last month, MKM Partners analyst Patrick McKeever said that Walmart has plenty of positive momentum.

“We think Walmart is continuing to benefit from investments in wages and training that have weighed on profitability, but are contributing to cleaner stores, higher in-stock levels, better customer service, and a faster check-out process,” McKeever said.

Recently, Walmart announced that it raised its starting wages from $10 per hour to $11 per hour in the wake of corporate tax cuts. The company also said that it will be returning some of its tax savings to eligible employees by paying out cash bonuses of up to $1,000.

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