Here is a deeper look at Walmart’s earnings power upside

Bernstein analysts project Walmart's earnings will rise significantly over the next five years, driven by its US e-commerce division achieving profitability by FY2030 through automation and denser delivery routes, and substantial growth in its retail media advertising business from $3 billion to $10 billion. These initiatives are projected to elevate US profit margins to approximately 7% and add over $1 per share in earnings, with potential additional value unlocked from Flipkart/PhonePe IPOs. Consequently, Bernstein rates Walmart Outperform with a $117 price target, noting its current valuation at a discount to its long-term average.

Analysis

According to a Bernstein analysis, Walmart (WMT) presents a compelling long-term earnings growth narrative, underpinned by a clear path to profitability in its U.S. e-commerce division and substantial expansion in its high-margin advertising business. The U.S. e-commerce arm, currently operating at an estimated -6.7% EBIT margin, is projected to achieve profitability by FY2030 through strategic investments in warehouse automation and delivery route densification. Concurrently, Walmart's retail media business is poised for significant growth; by increasing its ad penetration from the current 3% of online gross merchandise value to 5%—while still below Amazon's benchmark of 7%—and doubling online sales to over $200 billion, advertising revenue could surge from $3 billion to $10 billion. The combined effect of these initiatives is forecasted to elevate U.S. profit margins to approximately 7% and contribute over a dollar per share in earnings over five years. Further upside could be realized from the potential IPOs of its Indian holdings, Flipkart and PhonePe, which could fund value-accretive share buybacks. This outlook supports Bernstein's "Outperform" rating and $117 price target, particularly as the stock is noted to be trading at a 22-25x earnings multiple, a discount to its long-term average.

Key Decisions for Investors

• Investors could view Walmart as a long-term holding, as the analysis suggests a discounted valuation relative to its historical average and a clear, multi-year pathway to significant earnings growth driven by structural improvements in e-commerce and advertising.
• Key performance indicators to monitor are the trajectory of U.S. e-commerce EBIT margins and the growth of advertising revenue as a percentage of online sales, as these are the primary drivers of the forecasted $1+ EPS uplift.
• Watch for news regarding the potential IPOs of Indian assets Flipkart and PhonePe, as these events could serve as distinct catalysts to unlock value and fund share repurchases, providing an additional boost to earnings per share.