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The One Chart That Shows Wal-Mart Beating Amazon at Its Own Game

Shares of Wal-Mart Stores (WMT) have been performing so well that some analysts are holding it against the big-box retailer. But over the longer term, the changes at Wal-Mart could be big enough to help it compete against Amazon.com (AMZN), and that’s particularly true in the stock market.


Wal-Mart has gained a none-too-shabby 24% so far this year, but that didn’t stop Goldman Sachs analyst Matthew Fassler and team from removing it from the firm’s Conviction List, though they still maintained their Buy rating. In fact, it was that gain that caused them to make the change, not any change in their long-term thesis on Wal-Mart’s stock. They explain:

Our initial upgrade thesis from July is intact. We believe that WMT is as well positioned as any mass market retailer – in an admittedly imperfect world for mass market retailers – to cope with increasing demands on ecommerce and technology spend, weather AMZN’s growth and its increased focus on consumables, and maintain its franchise…

The question, then, is what price to pay: WMT’s stock has achieved what was expected to be a year’s worth of anticipated alpha in just three months on an improvement in sentiment; earnings estimates have not moved higher, but valuation has. Since upgrading WMT to Buy and adding it to the Conviction List, the stock is up 12.3% versus the S&P up 3.9% and the SPDR S&P Retail ETF (XRT)/Consumer Staples Select Sector SPDR ETF (XLP) +1.4%/-0.9%…The stock is trading near a long-run peak on absolute P/E, relative P/E, and EV/EBITDA.

So why not raise the price target? Fassler contends that he doesn’t expect a big earnings beat, while competition in grocery is likely to increase, and spending on tech will continue.

Of course, much of that has to do with the competition it faces from Amazon.com. Based on this chart, at least, the Institutional View’s Andrew Addison thinks its time to start betting that Wal-Mart will outperform Amazon.com, even if he’s not making it an official call:


He explains why:

A “pair” trade of buying WMT and shorting AMZN has bottomed. While not an official recommendation now, WMT is “breaking out” vs. AMZN. For the first time in more than 10 years, WMT hurdled a downtrend vs. AMZN, pushed above price re-sistance, & closed strongly above its newly-uptrending moving averages. Those factors make this upside move vs. AMZN significant, and unlike any other for more than a decade. If AMZN threatens a break of its critical price support (930), then this “pair trade” would become an official recommendation. Those who are overweight in AMZN should move some $’s into WMT to capture the developing “alpha.”

Shares of Wal-Mart Stores have risen 0.6% to $86.27 at 10:52 a.m. today, while Amazon.com has gained 0.7% to $1,001.98. The SPDR S&P Retail ETF has dropped 1.3% to $39.90, and the Consumer Staples Select Sector SPDR ETF has advanced 0.4% to $54.43.

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