Wal-Mart Stores Inc. was upgraded to outperform from neutral at Credit Suisse in anticipation of a strategy shift under new chief executive Doug McMillon.
The retailing giant has spent much of the past few years responding to its new place in the competitive environment, rather than setting the retail agenda as it has in the past.
Wal-Mart has also been distracted by merchandising, technology and operational issues.
Outgoing chief executive Mike Duke successfully tackled these issues during his tenure, but Mr. McMillon is now in a position to make more strategic changes, said Credit Suisse analyst Michael Exstein.
“We expect McMillon to delineate plans for a small store format and the acceleration of its roll out, to rationalize Wal-Mart’s international operations, and to recommit to general merchandise, where business is increasingly up for grabs as some big box retailers continue to close stores,” he said in a note to clients.
The analyst raised his target price on the stock to US$87 from US$80, based on an EV/EBITDA multiple of 8.7x for 2014.
Mr. Exstein sees a major inflection point approaching for the retail industry as Sears, Kmart, JCPenney, Toys R Us and even Target are showing signs of distress.
“The question will be who can pick up share as this realignment begins to accelerate,” he said. “We expect Wal-Mart will take advantage of this opportunity by reengaging in its general merchandise business.”
Source: Financial Post