The top Walmart analyst says the company has one big advantage over Amazon
Edward Yruma has been working as an analyst since 2001. After graduating from the University of Michigan, he began as an analyst at JPMorgan, eventually working his way up to the Vice President level. He focused on the food, auto, retail, and consumer services sectors.
Yruma is now the managing director of KeyBanc Capital Markets and is making a name for himself covering companies like Amazon and Walmart.
According to a Bloomberg ranking of analyst performance, Yruma is the top-performing Walmart analyst for the last twelve months, and he is bullish about the future of the company. Yruma rates Walmart a buy with a price target of $90.
Markets Insider caught up with Yruma to ask him about his ideas about Walmart's future, and the challenges it could face in the future.
Editor's note: This interview has been lightly edited for length and clarity.
Seth Archer: I see that you're overweight on Walmart with a price target about $10 higher than its current price. What's the most important thing for a new investor to know about Walmart?
Edward Yruma: Two quick things. First, they've improved the store experience. So, you've got better in-stock levels, better produce, more engaged employees, and now, you add to that, a component of growth in e-commerce. That adds another dimension of growth to the Walmart story.
Archer: Because it's trying to push into the online and boutique retailer space right?
Yruma: Yeah, I know there is a lot of hullabaloo in these small acquisitions, but I think the big thing is that this is a retailer that, you know, is trying to leverage some of their source scale and trying to push more into online.
Archer: What macro trends could possibly affect Walmart in the future?
Yruma: So Walmart is kind of representative of the US consumer broadly speaking. They literally hit right at the middle. So, obviously, the consumer has been fairly volatile and any sort of headwinds would be negative for Walmart. Conversely, with some of their growth in e-commerce, and some of the things they've done with pickup, they are starting to attract some more affluent customers as well.
Archer: So is that trend that could hurt them potentially diminishing in the future?
Yruma: I don't think it's diminishing because, again, I think their bread and butter is still representative of the US consumer overall. There seems to be a consumer that they seem to be tapping over time.
Archer: Gotcha. So what are Walmart's biggest competitors?
Yruma: In the traditional space, I would say Target and Kroger on the food side. And I'd say the big one is going to be Amazon on the e-commerce side.
Archer: And how does it stack up against those competitors?
Yruma: I would say on the traditional side, they have made great strides. Again, they've improved the condition of the store. They've improved the engagement level of employees, the merchandise section has gotten much better. So we think that they've gained at least a current advantage over Target.
As for Kroger, its a little bit of a different customer base, but I think Walmart has added, particularly on the fresh produce side, has added lots of fresh produce and has been very innovative in food in an effort to be more competitive with Kroger.
Archer: And what about Amazon?
Yruma: I'll tell you, it's a different beast. I would just say that clearly, Amazon is a leader in e-commerce. What's interesting is that this year there are a couple of innovations that Walmart has introduced.
First is free shipping with $35 and over orders and no membership required. And second, pickup in store with discounts, that in some ways, they've kind of stolen a bit of a step on Amazon.
Archer: Right, and they've just partnered with Google in another recent move right?
Yruma: Right.
Editor's Note: Google and Walmart recently teamed up so users of Google's personal assistant will be able to order products from Walmart with their voice.
Archer: So what's been the biggest driver of growth for Walmart in the last two or three years?
Yruma: For Walmart, I think it's just been stronger, more sustained traffic levels in stores. I think that has really come from a retail 101 focus. They've sharpened prices, got better merchandise, better engagement from employees, kinda retail 101.
In the past two quarters, you can kind of layer onto that some powerful growth in e-commerce. And that's turned the battle ship.
Archer: So, let's say, in five years time, what does Walmart look like?
Yruma: We think positive comp. growth, we think that they've made some significant strides in e-commerce. What's interesting is that where Walmart has an advantage, particularly today, and over time can leverage, is the nexus of stores and ecommerce. Obviously, Aamazon bought Whole Foods, and they are going to work very aggressively against that goal as well, but right now, Walmart's ability to link what you do in stores, and what you do online is somewhat unprecedented.
Archer: That is really interesting. So, my last question is: "If you could ask the CEO one question, what would it be?"
Yruma: That's a good question. "How committed to earnings growth are you in 2018?"
Archer: And that would be your question.
Yruma: You know, look. I think that something they had guided to a year ago, the clothing environment has continued to change, their cap expenditure plan is to explore investments. In light of that context, how important is that target.
