Discount retailer Walmart (WMT) has won a legal case brought against it by shareholders who alleged the company defrauded them by failing to disclose that federal prosecutors were investigating its opioid-dispensing practices.
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The Third U.S. Circuit Court of Appeals in Philadelphia has ruled that Walmart did not commit securities fraud by waiting until June 2018 to reveal it was being investigated, more than a year after the probe began and 10 weeks after a Texas prosecutor warned the company was likely to be indicted.
Walmart learned of the opioid probe after federal agents raided one of its stores, seeking records concerning two Texas doctors who were prescribing vast amounts of the addictive painkiller. Ultimately, the company was not indicted but was hit with a U.S. Department of Justice civil lawsuit in 2020. A trial is scheduled for November 2027. Walmart operates more than 5,000 pharmacies at its store locations.
No Securities Fraud
Shareholders sued Walmart after ProPublica reported on the opioid investigation in a 2020 news article, alerting them to the potential prosecution. However, in a decision delivered on Aug. 29, U.S. Circuit Court Judge Anthony Scirica said “not everything is securities fraud,” and that Walmart did not issue any misleading disclosures that would adversely impact its stock.
“The complaint does not plausibly allege the investigations into Walmart constituted a liability or a reasonably possible liability, or that Walmart’s disclosures implied it was not under investigation… Once the contours of the investigation were clearer, Walmart disclosed it was under investigation, what it was under investigation for, and that it faced possible losses,” wrote Judge Scirica in his court decision.
In November 2022, Walmart agreed to a $3.1 billion nationwide settlement of opioid claims brought by state, local, and tribal governments. WMT stock has gained 8% this year.
Is WMT Stock a Buy?
The stock of Walmart has a consensus Strong Buy rating among 29 Wall Street analysts. That rating is based on 29 Buy recommendations issued in the last three months. The average WMT price target of $113.89 implies 17.44% upside from current levels.
