Walmart (WMT) stock surged to its highest close in over three months on Tuesday.
Shares of the Arkansas-based retail giant popped 2.21% on the day to a closing price of $102.20, reacting to a top and bottom-line earnings beat that assuaged fear of a slowdown in retail spending felt since Thursday.
Adding to bullishness was a dividend increase that serves to defend against much downside as the retailer crossed the century mark. The company stated that it will be increasing its dividend to an annualized rate of $2.12 per share from the current $2.08.
"Dividends remain a key part of our capital allocation after we invest in the business to sustain long-term success," Brett Biggs, executive vice president and chief financial officer at Walmart, said. "We are pleased to be increasing our annual dividend for the 46th consecutive year, which reflects the confidence we have in our future growth and strong balance sheet."
The results were headlined by that eCommerce segment, which marked 40% growth in 2018 and is set to stay strong behind a bullish guide of 35% growth into 2019.
"We continue to like WMT as the retailer is reaping returns on the many years of investment in e-commerce and customer service, and we believe is now in position to accelerate market share gains in grocery while also growing EBIT," Deutsche Bank analyst Paul Trussel advised. "Importantly, our view is supported by our thesis that the food retail landscape is rapidly changing due to high adoption rates of convenience/online grocery and market share is meaningfully bubbling to the top."
Trussell set a "Buy" rating and a $114 price target on the stock on the basis of eCommerce potential globally.
The segment will look to eat away at Amazon's (AMZN) dominance in the category globally as it accelerates at a rate eclipsing overall industry growth estimates.
"Amazon still maintains some major competitive advantages against Walmart and other smaller e-commerce rivals -- from Prime, to its fulfillment infrastructure, to its giant base of marketplace sellers, to its brand and customer service reputation," he noted. "Given what's known about Walmart's e-commerce business, the business shouldn't be seen as a major threat to Amazon at this point in time."
One factor that could further growth at a rapid rate and seek to overtake Amazon is the company's big bet on the burgeoning Indian market with Flipkart, a company it majority acquired in a $16 billion blockbuster deal in 2018.
Yet, this too has not been without roadblocks.
"Regarding Flipkart, with any change like this, there can be some disruption to the business, but we feel good about our ability to transition with minimal interruption," CFO Brett Biggs told analysts in a conference call following the earnings release on Tuesday morning. "While there has been some growing uncertainty in the overall macroeconomic and political environment, we're confident in our ability to operate our business and serve customers effectively in most any economic climate."
One of the key uncertainties in India in particular is the imposition of new, protectionist foreign direct investment rules that could curtail Walmart's expansion in the region.
Analysts have lauded the company's efforts to sidestep these issues, but the uncertainty will certainly remain for much of 2019 carries on.
Of course, this adds to questions surrounding expansionary efforts in China that could be marred by further trade tensions and anxiety over UK-based supermarket subsidiary Asda's place post-Brexit.
Overall, the market seems bullish about the long term prospects of the company's embrace of the app economy, delivery, and eCommerce trends among the resilient consumer.
"My take on Walmart is that we're seeing the beginning payouts of investments to compete with a shifting retail space, Real money contributor David Butler wrote in his column on Tuesday morning. "Obviously Jet.com has been a strong move in the online space, but the implementation of grocery pickup has a two-pronged effect. You maintain a position against Amazon's attempts to conquer grocery with Whole Foods, all the while promoting customers visit to your stores."
The omnichannel aspect of this consumer trend is a positive one for Walmart, he asserted.
Still, the question remains over whether investors should pull the trigger on that compelling story now or wait for a better entry point.
Historically, a patient investor has been rewarded.
"Over the past two years, Walmart has a history of tepid performance for the three weeks following earnings after day one," Real Money contributor Tim Collins called out. "The stock has traded lower from day one's close on six occasions while rising two times and remaining flat once."
As such, the story is a strong one, but there could be room for the deal to sweeten for speculators.
Shares have lost a bit of steam 30 minutes after close, corroborating this thesis for now.