Morgan Stanley reiterates Walmart Overweight, arguing that slower store comps have not yet broken the earnings growth logic

Overview

This report focuses on whether the slowdown in Store-Only same-store sales in Walmart Inc's U.S. business will affect earnings quality. Morgan Stanley believes that as Walmart U.S. eCommerce coverage expands, using 3,569 Supercenters as fulfillment centers, high-margin revenue streams such as Walmart+ membership fees and Walmart Connect advertising revenue are becoming the main sources of EBIT growth, so the overall enterprise growth rate remains intact.

Core views

The core view is that negative or limited-growth Store-Only comp sales are not currently a decisive risk to the investment case. The profit contribution from eCommerce, advertising, and membership fees is sufficient to offset pressure in traditional store sales and gives Walmart room to cut prices, withstand inflation, and gain market share. The report reiterates an Overweight rating and a $140 target price, favoring its scale advantage, defensive characteristics, and structural earnings growth driven by eCommerce and supply-chain capabilities.

Analysis framework

The report splits Walmart U.S.'s P&L into Store-Only and eCommerce Block and separately examines revenue, adjusted operating profit, margins, and incremental margins. It then builds base, bull, and bear cases to test how Walmart U.S. overall EBIT growth would be affected if Store-Only comps ranged from flat to positive growth, mild negative growth, or deteriorated to -3% to -4%.

Methodology notes

• Valuation methodsblended p/e and ev/ebitda

  Blended valuation multiple

  The target price is based on F28e EPS of $3.16, which implies about 44.2x P/E, and F28e EBITDA of about $52.8b, which implies about 22x EV/EBITDA; the report argues that a P/E above the 10-year historical average of about 21x is reasonable because Walmart has transformed from a traditional brick-and-mortar retailer into an eCommerce and supply-chain disruptor.

• scenario_analysisbase bull bear case

  Scenario analysis

  The base-case target price is $140, the bull-case target price is $170, and the bear-case target price is $100; the key variables are the Store-Only comp sales range and the profit contribution from the eCommerce Block.

• operating_modelMorgan Stanley ModelWare

  Segment operating model

  The report notes that, unless otherwise marked, the metrics are based on the Morgan Stanley ModelWare framework and split Walmart U.S. into revenue and profit modules such as Store-Only, Online Sales, and Advertising.

• market_signalAlphaWise survey

  Monthly consumer or membership tracking survey

  The report says Walmart+ membership fee revenue is tracked through the monthly AlphaWise survey and is still estimated to be growing in the high-20% range.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Walmart Inc (WMT.US)

  Core covered name

  Strengths

  Scale advantage, defensive retail profile, eCommerce fulfillment network, Walmart Connect advertising revenue, Walmart+ membership fees, high-margin substitute revenue streams, and supply-chain capabilities.

  Weaknesses

  Slower Store-Only comp sales, apparent comp-sales pressure from pharmacy-related MFP regulation, and a recent decline in the profit contribution from the traditional store business.

  Comparison

  The report argues that Walmart has evolved from a brick-and-mortar retailer facing AMZN pressure into an eCommerce and supply-chain disruptor, and therefore deserves a valuation multiple above the historical average.

  Risks

  Slower eCommerce growth, a renewed widening of eCommerce losses, higher-than-expected Flipkart losses, or Store-Only comp sales deteriorating to -3% to -4% and offsetting eCommerce Block profit growth.

• Walmart Connect

  An important profit source in Walmart's earnings flywheel

  Strengths

  Advertising revenue grew 44% year over year in 1Q27, the margin assumption is high, and it benefits from the mix shift in eCommerce toward General Merchandise and the 3P Marketplace.

  Weaknesses

  Depends on continued growth in eCommerce traffic and merchant advertising demand.

  Comparison

  Compared with traditional store sales, advertising revenue carries higher margins and contributes more to EBIT growth.

  Risks

  If eCommerce traffic growth slows or retail media competition intensifies, advertising revenue growth could ease.

• Walmart+ Membership

  High-margin recurring revenue source

  Strengths

  The report estimates membership fee revenue is still growing in the high-20% range and is tracked through monthly AlphaWise surveys.

  Weaknesses

  Growth depends on membership penetration, retention, and the attractiveness of the benefits package.

  Comparison

  Compared with low-margin merchandise sales, membership fees are more helpful for margins and operating leverage.

  Risks

  Slower member growth or higher promotional costs could weaken the profit contribution of the flywheel.

• Store-Only business

  The main downside variable in the earnings scenario

  Strengths

  After excluding the MFP drug-pricing effect, 1Q27 Store-Only comps were still positive; stable merchandise gross margin and operating efficiency can partly cushion revenue pressure.

  Weaknesses

  Recent Store-Only profit contribution has declined, and comp sales growth is limited or may turn negative.

  Comparison

  Compared with the eCommerce Block, the Store-Only business is more mature and slower growing, but it still determines how much pressure the overall P&L arithmetic faces.

  Risks

  If Store-Only comp sales deteriorate to -3% to -4%, they could offset all EBIT growth created by the eCommerce Block.

Key data

• RatingOverweightMorgan Stanley reiterates the rating.
• Target price$140.00Base-case target price.
• Current price$117.18Close on 2026-06-18.
• F28e EPS$3.16F28e earnings per share used in the target price valuation.
• F28e EBITDA~$52.8bEBITDA base used in the target price valuation.
• Walmart Connect ad revenue growth+44% y/y in 1FQ27Above +24% y/y in 4Q25.
• MFP impact on Walmart U.S. comp sales~100bps in 1FQ27Apparent comp-sales pressure from drug-pricing regulation.
• MFP impact on Store-Only comp sales~130bpsStore-Only is hit harder because pharmacy accounts for a larger share of Store-Only sales.
• Number of Supercenters3,569Used to support the front-end inventory and fulfillment network.
• Base-case Store-Only comp sales rangeflat to -1%Within this range, the eCommerce flywheel can support mid-single-digit EBIT growth at Walmart U.S.
• Bull-case target price$170.00Assumes the alternative flywheel accelerates and Walmart U.S. comps and profit growth strengthen.
• Bear-case target price$100.00Assumes Store-Only comp sales deteriorate further and offset eCommerce profit growth.

Impact & implications

For investors, the report shifts the key call on WMT back from traditional store comps to the monetization capability of the eCommerce flywheel. As long as high-margin revenue from advertising, membership fees, 1P/3P Marketplace, and automation keeps expanding, Walmart is likely to gain market share while maintaining price competitiveness and supporting a valuation multiple above that of traditional retailers.

Risks

• Store-Only comp sales deteriorate further to -3% to -4%, causing eCommerce Block profit growth to be offset and Walmart U.S. EBIT to flatten.
• U.S. eCommerce growth slows to below 15%, or comps fall below 2%.
• eCommerce losses widen again after a brief improvement.
• Flipkart losses come in above expectations.
• MFP drug-pricing regulation continues to weigh on results, and another 15 to 20 drugs could be repriced each year, lasting at least through 2029.
• Unusual costs such as general liability expenses and medical insurance accruals continue to distort quarterly earnings.
• The elevated valuation requires continued earnings delivery; if eCommerce, advertising, or membership revenue comes in below expectations, the multiple could come under pressure.

What to watch

• Whether Walmart U.S. Store-Only comps stay in the flat to -1% range or deteriorate further.
• Whether Walmart Connect advertising growth can remain strong, especially the contribution from retail media, General Merchandise, and the 3P Marketplace.
• Whether Walmart+ membership fee revenue can continue to grow in the high-20% range.
• Whether the adjusted operating margin of the eCommerce Block keeps improving and shifts from losses to a more stable profit contribution.
• Whether price rollbacks help Walmart gain market share without materially compressing gross margin.
• Whether the actual impact of MFP drug-pricing regulation on comp sales and gross profit dollars remains limited.
• Whether F27e/F28e EPS, EBIT, and revenue growth match the base case.