Low Oil Prices a Boon for WMT Stock
Investors of Wal-Mart Stores, Inc. (NYSE:WMT) have been underwhelmed in 2015, as the company’s stock price went on a steady decline. Year-to-date, WMT stock lost about 30%. However, with the downturn in the energy sector and the launch of a mobile payment system, Walmart might see a turnaround.
Let me explain…
While low oil and gas prices have been devastating to companies in the energy sector, they might be able to give a solid boost to Walmart’s stock performance. In fact, Walmart was selected as the “favorite low oil & gas play” by Nomura. (Source: “Why Tumbling Oil Prices are Great News for Wal-Mart,” Barron’s, December 14, 2015.)
Plunging oil and gas prices would bring lower energy bills to consumers. Nomura believes that low-income consumers stand to benefit most from lower gas prices. The bank estimates that the average annual income of a Walmart shopper is approximately $35,000, so lower energy bills could free up disposable income. Eventually, part of the freed-up income could be spent at Walmart.
Another way for Walmart to benefit from low oil prices comes from its large transportation fleet. The company owns one of the largest private transportation fleets in the U.S., with more than 6,650 trucks. With oil prices dropping to the floor, the company could be looking at significant savings at the pump.
Based on Walmart’s potential windfall gain during the downturn in oil and gas prices, Nomura is giving WMT stock a “Buy” rating. Moreover, the bank also gave WMT stock a $70.00 price target, roughly 16% higher than Walmart’s stock price at the close of Monday’s trading session.
Chart courtesy of www.StockCharts.com
Last week, Walmart also introduced its first-ever mobile payment system called “Walmart Pay.” The payment system can be linked to any major credit card, debit card, prepaid credit card, or Walmart gift card. The mobile app also works with both “iOS”- and “Android”-based devices. Note that with the launch of Walmart Pay, the company becomes the only retailer to offer its own customized payment solution to customers.
Using Walmart Pay is pretty easy. All you need to do is open the app, scan the code displayed at the register, and an e-receipt will be sent to the app. The payment feature will be introduced this December in select stores and will be launched nationwide by the first half of 2016.
Of course, Walmart is not the first company to enter the mobile payment industry, as Apple, Samsung, Alphabet, and PayPal are already in the business. However, according to market research company Forrester Research, the introduction of Walmart Pay is a very smart move for the company.
The neat part about Walmart Pay is that instead of becoming a rival for “Apple Pay,” the company is emulating something else—the Starbucks app. The coffee giant’s app’s mobile payment feature has grown tremendously since its launch. Right now, mobile payments account for 20% of all of Starbucks’ in-store transactions in the U.S., more than double the figure from a year ago. (Source: “Walmart Takes a Page from Starbucks in Mobile Payments,” Fortune, December 10, 2015.)
By integrating the payment feature into the Walmart app, Walmart could enjoy something quite big: the 22 million customers who are already actively using the Walmart app each month. The Walmart app also ranks among the top three retail apps in both the Apple and Google app stores.
The Bottom Line on WMT Stock
The retail giant might not seem that attractive compared to fast-growing tech companies. However, with a low valuation (a price-to-earnings multiple of 12.86), a handsome dividend (3.27%), and new strategies such as a digital payment app, Walmart’s increasing value will not go unnoticed. When that happens, the WMT stock price could get a solid boost.