Walmart remains resilient under pressure, but valuation limits upside

Overview

This report is Deutsche Bank's company research update on Walmart Inc. The core conclusion is that the company still shows strong operating resilience despite a cautious consumer backdrop, rising fuel costs, and pressure from potential price cuts by competitors. The report maintains a Hold rating and a USD 120 target price, acknowledges Walmart's e-commerce growth, Marketplace expansion, store network, and ability to invest in price, but believes the current valuation already largely reflects these advantages.

Core views

The report views Walmart's 1Q26 performance as mixed: U.S. same-store sales growth was slightly below buy-side expectations, management sounded more cautious about consumers, and competitive pricing actions plus fuel costs created pressure. However, the company offset part of the headwinds through its business mix, digital advertising, inventory management, and e-commerce growth, and U.S. gross margin still expanded. Management kept full-year guidance unchanged, signaling operating resilience; however, the stock trades at about 46x 2026 consensus EPS, above the roughly 36x average over the past 12 months, so Deutsche Bank remains cautious.

Analysis framework

The report uses an earnings review, same-store sales decomposition, gross margin and expense trend analysis, short-term and full-year forecast updates, and an SOTP valuation framework. The analysis focuses on 1Q26 actual results versus Deutsche Bank, the market, and guidance; 2Q26 and 2026-2027 EPS forecasts; same-store sales and gross margin changes in U.S. retail and Sam's Club; the contribution from e-commerce and Marketplace; fuel cost and price investment pressure; and the value of Flipkart.

Methodology notes

• Valuation methodsSOTP valuation

  Sum-of-the-parts valuation

  The target price of USD 120 comes from the sum of the values of Walmart's major assets: the core business is valued at 40x Deutsche Bank's 2026 EPS forecast of USD 2.87, and Flipkart is valued at 4.5x sales.

• Earnings forecastEPS and same-store sales forecast

  Performance driver breakdown

  The report evaluates quarterly and annual earnings trends through adjusted EPS, same-store sales, gross margin, SG&A growth, and EBIT margin.

• Relative valuationP/E comparison

  Comparison of current valuation and historical average

  The report notes that Walmart trades at about 46x 2026 consensus EPS, above the 12-month average of 36x, which is a key reason for maintaining the Hold rating.

Asset mapping & comparison

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

• Walmart Inc (US.WMT)

  Coverage target

  Strengths

  Strong value positioning, a broad store network, robust e-commerce growth, accelerating Marketplace, inventory management and digital advertising improvements in gross margin, and flexibility to preserve price gaps through alternative revenue streams.

  Weaknesses

  1Q U.S. same-store sales missed buy-side expectations, U.S. store same-store sales have been negative for two consecutive quarters, and fuel, wages, benefits, and price investment may continue to squeeze profits.

  Comparison

  The report says the target valuation multiple of 40x is above the past 12-month average of 36x and the three-year average of 30x, reflecting sustained revenue momentum, share gains, and importance across income groups, but also implying lower valuation tolerance.

  Risks

  Upside risks include more share gains from consumer value-seeking, faster operating profit expansion, and more room for price investment from tariff refunds; downside risks include slower same-store sales and e-commerce growth, gross margin compression from higher investment, and SG&A pressure from labor and new-store investment.

Key data

• RatingHoldRating maintained.
• Target priceUSD 120.00Unchanged.
• Latest priceUSD 121.34As of 2026-05-21.
• 1Q26 adjusted EPSUSD 0.66Deutsche Bank expected USD 0.67, market expected USD 0.66, company guidance USD 0.63-0.65.
• Walmart U.S. 1Q same-store sales+4.1%Below Deutsche Bank's +4.5% and slightly above the market's +4.0%.
• Sam's Club 1Q same-store sales+3.9%Deutsche Bank +4.0%, market +3.6%.
• Walmart U.S. e-commerce growth+26%About +47% on a two-year compounded basis, contributing 530 bps to same-store sales.
• Change in Walmart U.S. gross margin+29 bpsDriven by inventory management, digital advertising growth, and improved category mix.
• 1Q fuel cost headwindabout USD 175MHigher than expected but absorbed by the company.
• 2Q fuel cost headwindabout USD 250MThe report expects pressure to continue in 2Q.
• 2Q26 adjusted EPS forecastUSD 0.74Unchanged; market USD 0.75; company guidance USD 0.72-0.74.
• 2026 adjusted EPS forecastUSD 2.87Unchanged; market USD 2.92; company guidance USD 2.75-2.85.
• 2027 adjusted EPS forecastUSD 3.17Unchanged; market USD 3.30.
• Valuation multiple40x 2026 EPS (core business, excluding Flipkart)Above the one-year average of 36x and the three-year average of 30x.

Impact & implications

The report is mildly positive on Walmart's fundamentals, but the investment conclusion is neutral. If consumers continue to shift toward value-oriented channels, the company maintains its price gap, and profit elasticity improves through e-commerce, Marketplace, and advertising revenue streams, Walmart could still gain share and expand profits. However, with the stock already reflecting a high-quality premium, any near-term slowdown in same-store sales, rising costs, or gross margin pressure could limit upside.

Risks

• A slowdown in same-store sales trends, especially if U.S. store same-store sales remain negative.
• A deceleration in e-commerce growth could weaken sales and gross margin improvement momentum.
• Cost pressure from fuel, price investment, wages, and benefits could intensify.
• Rising food inflation could further erode consumers' discretionary spending.
• Valuation is elevated at about 46x 2026 consensus EPS, limiting the risk-reward.
• If competitors become more aggressive on price cuts, Walmart may need to increase price investment and compress margins.

What to watch

• Whether 2Q26 adjusted EPS can reach the upper end of the USD 0.72-0.74 guidance range.
• Whether Walmart U.S. same-store sales can reaccelerate, especially underlying demand after excluding MFP effects.
• Whether U.S. store same-store sales can end the streak of negative growth.
• Whether e-commerce and Marketplace growth can be sustained, especially whether Marketplace's roughly 50% growth is durable.
• The impact of fuel costs on gross margin and price gaps.
• The pull-through from 7,200 rollback items and further price investment on traffic, share, and margins.
• Whether the 2026 EPS guidance of USD 2.75-2.85 is raised or maintained.
• Whether the stock's valuation falls from above-historical-average levels, improving the risk-reward.