War-resilient Walmart (WMT) shoppers are still pulling up to the pumps despite gas prices being around $4 a gallon.
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Psychological Price Thresholds
According to Jefferies analyst Corey Tarlowe, following a meeting with Walmart executives, customers are clear about how much is too much.
“Management reiterated that there are clear psychological thresholds [for gas], which are $3-4 manageable, $4-5 economic pressure, $5 shock,” Tarlowe wrote. “Importantly, they have not seen behavior changes in performance data, only in sentiment surveys. Current trends show no meaningful shift in baskets, trips, or mix.”
Tarlowe did say, however, that management acknowledged some exposure to high diesel prices in Walmart’s private fleet, but that was already baked into the company’s guidance. Walmart’s food inflation assumptions were also unchanged, he said, and the retailer said it can absorb around 50 to 100 basis points of price escalation through scale, sourcing, and pricing discipline. In each area, duration is “the key risk variable,” Tarlowe said.
Gas Pressure Set to Grow
Americans now face a national average gas price of $4.081 per gallon, according to AAA, as a result of supply pressure following the start of the Iran war in February.
That pressure is likely to continue to grow over the next two to three weeks – which is the timeline set out by President Trump last night as he vowed to finish the job he started in Iran. The closure of the Strait of Hormuz and potentially further damage to energy infrastructure in the Gulf and Iran itself is likely to keep gas prices climbing.
With U.S. consumer sentiment already shaky before the start of the conflict, shoppers will be looking to well-known, trusted value retailers like Walmart to help ease the pain.
Is WMT a Good Stock to Buy Now?
On TipRanks, WMT has a Strong Buy consensus based on 27 Buy and 2 Hold ratings. Its highest price target is $150. WMT stock’s consensus price target is $138.92, implying a 10.96% upside.
