We like WMT into any noise around a broker downgrade this morning. Let’s face some facts, doing store checks on a $183bn company isn’t too relevant. They may offer up some nice anecdotes, but we’ll rely on cold hard data.
There’s chart below that shows the spread in Wal-Mart US comps back to the beginning of 2008 vs. US Retail Sales (columns). The line represents the spread between WMT comps less US Retail Sales.
The spread grossly favored WMT at the start of the recession and the consumer started to trade down, but then the economic recovery and the Wal-Mart’s own lack of execution reversed that spread entirely for 4Q09 through 1Q11. What’s notable, however, is the incremental change this past quarter showing a slight downtick in the spread. Hardly consequential, but we look at everything on the margin. And on the margin, this stopped moving against WMT.
If you believe, like we do, that the ‘trade down’ theme for the consumer is still very much alive and likely to accelerate, then WMT is one of the best places to look.
Longer-term (TAIL) we definitely like Target here better. But there’s more risk in that model near-term.
From a TRADE and TREND perspective, stick with WMT.
