All of the changes and upgrades at Wal-Mart Stores Inc. could be helping to improve its reputation with an important demographic: millennials.
Following the company’s Tuesday investor event, analyst notes have been upbeat for a number of reasons. At Susquehanna Financial Group, analysts said the retail giant’s recent moves might be making a positive impression on young shoppers.
“The brand perception of Wal-Mart has improved significantly, which we believe will help bring in higher value brands and more millennial shoppers,” analysts led by Bill Dreher wrote in a Wednesday note. “Following the meeting, we are now more convinced than ever that Wal-Mart is on the correct path to secure its position in the retail landscape of tomorrow.”
Susquehanna rates Wal-Mart WMT, +2.10% share positive, and raised its price target to $99 from $93.
Cowen & Company focused its praise on the “aggressive and innovative strategies to leverage its store network, which we believe provides strategic advantages over both brick-and-mortar and online competition.” On the long list of highlights, analysts led by Oliver Chen highlight the retailer’s Mobile Express initiatives, online grocery expansion, and the ways it is using its acquisition of Jet.com.
Still, analysts say there are risks to doing so much.
“[A]s the competitive environment in grocery continues to increase, Wal-Mart will need to expertly balance the need to potentially invest more in price than previously anticipated which could limit gross margin upside versus potential traffic deterioration,” the note said.
And while, Cowen is happy about recent omnichannel initiatives and pipeline of tests, there is a risk that employees will be overburdened with information that could negatively impact customer service, “although Walmart academies should provide associates with tools.”
Cowen rates Wal-Mart shares outperform and raised its price target to $94 from $86.
Wal-Mart expects U.S. e-commerce growth to be about 40% next year with about 1,000 grocery pickup locations coming, but fewer than 25 new store locations. The company, and many analysts, highlight that customers who make purchases across channels spend nearly twice as much as those who only buy in-store.
“Thus, enhancements to areas such as online grocery and its digital operations in general should help Walmart gain even more wallet share among its customer base over time, even if its stores experience some modest cannibalization from e-commerce,” UBS analysts wrote in a note.
UBS rates Wal-Mart shares neutral with a price target of $85.
“In an evolving retail environment, we think Walmart has adapted better than most,” the analysts wrote. “With competition intensifying, it is tough to see much potential for margin expansion anytime soon.”
Wal-Mart shares are up 8.4% for the week so far, and 27% for the past year. The S&P 500 index SPX, +0.11% is up 19.4% for the last 12 months and the Dow Jones Industrial Average DJIA, +0.10% has run up 26% for the period.