One of Walmart's biggest bulls explains why its a buy ahead of earnings
- Walmart is a buy right now, Cowen analyst Oliver Chen told Business Insider .
- The retailer reports first-quarter earnings ahead of Thursday's opening bell.
- Walmart is making itself competitive in online groceries, and e-commerce in general.
- Its Flipkart purchase is a positive over the long-term.
- Watch Walmart trade in real time here.
Walmart is about to show just how competitive it is in several different areas, says one of the company's biggest bulls ahead of its first-quarter earnings.
With a $120 price target, 41% above Walmart's current level, Cowen's Oliver Chen told Business Insider Walmart is "good to own ahead of the earnings print."He explained why Walmart is poised for growth in both the short- and long-term.
After Amazon bought Whole-Foods, US grocery stocks got rocked, and the industry had to adapt to survive. Big grocers are now building their online capabilities to compete with Amazon, and Chen says Walmart is strategically "setting themselves up to compete effectively against Amazon."
Walmart's store location and pricing gives it an edge in online grocery sales, which now accounts for 56% of the retailer's revenue, Chen noted. "They can use locations as a competitive advantage with grocery pick-up, which is extremely well received," he said. In short, customers order groceries online and then pick them up at a Walmart in close proximity. The sheer volume of Walmart stores enables it to achieve this convenience.
Walmart also has the ability to undercut the prices of other grocers. "They won't be undersold, so Walmart will be a low price leader," Chen said. And because Walmart has higher margins in other business segments, "that enables them to manage prices," Chen added, giving it greater ability than other grocers to compete with Amazon's low prices.
Groceries aside, broader e-commerce sales haven't been too shabby for Walmart. Not only has Walmart's e-commerce growth rate outpaced that of Amazon's in the past year, but Chen thinks that will continue.
Amazon e-commerce revenue grew 26% in the first-quarter this year according to UBS data, and Chen forecasts a 40% growth rate year-over-year for Walmart. Even being conservative, Chen says, "Ee don't have a view that they're supposed to grow lower than that."
Long-term growthEarlier this month, Walmart bought 77% of Indian e-commerce leader Flipkart for $16 billion. And while some investors are concerned that the not-yet-profitable Flipkart will be a drag on Walmart's earnings going forward, Chen isn't concerned. "Investors need to be willing to accept short-term losses," he said, adding "this is important in being globally competitive with Amazon in the long-term."
All told, Chen certainly advises buying Walmart. "I like it this week, because we think that online business can sequentially improve."
Walmart is down 12.84% on the year.