Cost-conscious Americans are reining in their spending and that should give Walmart shares a boost, Jefferies said in a note Friday. The Wall Street firm expects a potential slowdown in consumer spending, especially in nonessential categories, after its latest survey found that consumers plan to spend more on needs versus wants. There is also a strong propensity to move away from brand names. Some 87% of respondents were at least somewhat likely to trade down to less expensive alternatives, such as private label. Jeffries polled over 1,000 U.S. consumers about their spending over the next 12 months. “Given this dynamic, we are incrementally more bullish on WMT as it is the value leader in grocery with a strong private label offering and is currently investing to improve omni-order economics and the customer experience,” analyst Corey Tarlowe wrote. WMT YTD mountain Walmart year to date There’s been a broader shift to private label underway as inflation-weary consumers try to save money amid rising prices. Specifically, canned vegetables, meats and cheese are trending higher in private label share, according to Numerator . Treats and food for both cats and dogs are seeing the strongest gains in private label dollar share, the firm found. Walmart’s store brands include Sam’s Choice and Great Value, the latter of which is the most popular private label brand, according to Numerator. That “best-in-class” assortment of private label will help Walmart continue to deliver strong grocery results, Tarlowe said. Its private label penetration is in the high 20% and in the first quarter, its penetration grew 110 basis points year over year, he pointed out. He expects its private label penetration to continue to grow. According to Jefferies’ bull case, the trade down could boost Walmart’s 2024 comparable sales to 6.5%, versus the consensus of 3.4%, and boost earnings per share to $6.50, versus the consensus of $6.24, Tarlowe said. His $175 price target implies 15% upside from Thursday’s close. Separately, Morgan Stanley put out a research note Thursday, saying it too sees potential upside to fiscal 2024 estimates at Walmart. “We like WMT as a place to hide, which also offers upside optionality through a possible margin inflection in F’25 and beyond,” wrote analyst Simeon Gutman, in a research note. — CNBC’s Michael Bloom contributed reporting.
