(In Comeback Stocks, Investopedia looks up close at companies whose stocks have staged sustained rebounds, and at their longterm prospects.)

Just a year ago, the outlook looked grim for retail giant Walmart Inc. (WMT). Its share price tumbled by nearly 26% over four months from January to May last year as the nation's largest brick-and-mortar retailer faced a relentless assault primarily from e-commerce giant Amazon.com Inc. (AMZN), whose $900 billion market value is about three times as big as Walmart's.

Beating Rival Amazon

But since then, Walmart has begun to reap the fruits of a major operational turnaround that's been fueled by steps such as adding new products and spending billions on automation to improve service and reduce costs, which has helped it to grab more market share. The result: since its May 2018 intraday low, Walmart stock has surged by about 37% as of August 21. Moreover, year-to-date, its shares have risen by about 20%, almost as much as the 21.41% gain for Amazon and outpacing the S&P 500 Index (SPX), which is up by 16.66%.

Back to Basics: Cost Control

"The fully realized vision of what Walmart could be is so fantastic that, if Walmart even accidentally leans in the right direction, we think it could create an outsized investment return over several years," writes Brandon Fletcher, an analyst with Bernstein, as quoted by Barron's. He observes that new management is getting back to the basics that drove company strategy for many years, especially cost control. Unlike the past, Walmart is now regarded as Amazon's most serious large challenger by some analysts.

Favorably Positioned

That change in view is illustrated by Walmart's 2Q earnings report on Aug. 15 in which it beat estimates by a long shot, sharply boosting its stock in August as the broader market plunged on trade war concerns. By contrast, Walmart is "well positioned for China Tariff scenarios," said Bank of America in a post-earnings report, sharply boosting its target for the stock to $135 a share. Bank of America noted Walmart's "impressive" sales momentum, successful e-commerce initiatives, easier comparisons going forward, and favorable demographics. A key has been Walmart's impressive execution in combining both digital and bricks-and-mortar store services, said BofA analyst Robert Ohmes, in an earlier report.

Key Takeaways

  • Walmart stock is up sharply over the past year, in a big turnaround.
  • The company is gaining market share and controlling costs.
  • The retailer's enhanced delivery offerings are a challenge to Amazon.

Gaining Market Share

A key driver of Walmart's success has been expanded product offerings in its grocery departments, a key source of revenue and profits. That's enabled it to gain market share in retail food sales during recent quarters, Barron's reports. Joseph Feldman, assistant director of research at Telsey Advisory Group, believes that big grocers will continue to get bigger, and that Walmart is well-positioned to benefit from this trend. Kroger Co. (KR) is among the grocery chains feeling the pressure from Walmart, with its stock down sharply in 2019.

Meanwhile, Walmart also is gaining market share in non-food sales, at the expense of ailing department store chains such as Macy's Inc. (M) and JC Penny Co. Inc. (JCP), CNN reports. Walmart also has invested in remodeling its stores, has raised wages for its employees, and has expanded its clothing offerings to include more high-end brands, CNN adds.

Enhanced Customer Delivery

When it comes to fulfillment and shipping, Walmart is able to leverage 6,000 trucks and employs 8,500 drivers, one of the largest private fleets in the U.S., per Barron's. While the company also uses third-party shippers, its own large fleet adds flexibility and responsiveness.

Aided by a revamped website, this has helped Walmart to implement curbside pickup for groceries and make one-day shipping available for 75% of its U.S. customers, boosting its competitive position with Amazon. In three markets, Walmart even plans to test “in-home delivery of groceries into a customer’s refrigerator," per Barron's. This clearly is a response to Amazon Key, a program by which Amazon places deliveries into a customer's home, garage, or car. "Combining physical stores with digital options is the future of retail," Cowen analyst Oliver Chen observed in a note to clients, as quoted by CNN. Walmart "shines here," he added.

Earnings Performance

Walmart has also shined in August, when its strong earnings report beat estimates. While revenues were slightly below estimates, Same-store sales in its U.S. locations were up by 2.8%, and e-commerce sales rose by 37%.

Future Challenges

It may get tougher for Walmart to keep its stock flying as the global economy slows. Consensus estimates anticipate that EPS will be unchanged year-over-year in the company's current fiscal quarter, and by up by a modest 2.1% in the last quarter of fiscal 2020, which ends next January, per Yahoo Finance. Management guidance for this fiscal year projects 3% total sales growth, and a 35% increase in e-commerce sales, per the company. Despite Walmart's progress, e-commerce sales will comprise a small share of the company's revenue. To boost its sales, earnings, and stock price in the long term, Walmart may need to grow its e-commerce franchise even faster.