Jefferies Upgrades Wal-Mart (WMT) to Buy; Lists 10 Reasons to Own

Jefferies upgraded Wal-Mart (NYSE: WMT) from Hold to Buy with a price target of $82.00 (from $60.00), citing a turnaround as execution improves.

Analyst Daniel Binder commented, "Based on our store checks and survey work, we believe WMT’s store investments are yielding broadly improved store conditions and Q1 sales results seem to confirm this. We think this improvement will be longer lasting and should lead to upside in sales and an upward EPS revision cycle. We think there are a few things that could move shares higher and improving US store sales momentum is the biggest and most impactful to the bottom line."

Top 10 reasons to own WMT shares, according to Binder:

1) Investments in people, process, technology and stores is more evident and store standards are improving. Our confidence in improved execution is higher and we think sales momentum could improve further.

2) Thoughtful price cutting could yield better sales results and is the next logical step. Funding this is better inventory mgmt, better vendor terms and favorable overseas sourcing.

3) Improved Inventory mgmt. is showing many benefits, including less cluttered stores and backrooms, less handling, better markdown experience, lower shrink, and much better cash flow ($4 billion FCF in Q1).

4) Sourcing is improving in grocery and helping lift product quality and shelf life. Market share should also improve with price investments and the rollout of online grocery.

5) Rational store growth – In the last year mgmt. has pruned the store portfolio and slowed sq. ft. growth, which is translating to more profitable international stores and less cannibalization in the US.

6) WMT has laid out a clear view of expense headwinds and they are peaking this year.

7) Downward EPS revisions have stopped and now turning positive. We are ahead of the Street on sales, EPS and cash flow for the FY17 and FY18.

8) Expectations for a sustained turnaround are still not that high and we are in the early innings, so there is room for shares to move higher.

9) Lower income households are seeing better than average wage improvements y-y. 10) Institutional ownership of WMT shares has come down since 2008. A turnaround could attract greater institutional ownership given its heavy weighting in the S&P 500.

For an analyst ratings summary and ratings history on Wal-Mart click here. For more ratings news on Wal-Mart click here.

Shares of Wal-Mart closed at $70.87 yesterday.

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