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Why shipping delays won't torpedo Walmart

·Anchor, Editor-at-Large
·2-min read
In this article:
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The continuing chaos at the nation's ports that is already creating out-of-stocks and shipping delays at retailers before the peak holiday season may not crush the world's largest retailer Walmart (WMT), analysts argue.

In large part that reflects the benefits of Walmart being, well, humungous and also very well run by its executive team.

Jefferies retail analyst Stephanie Wissink points out that Walmart owns a private truck fleet, meaning it could mitigate rate (price) increases and delays by third-party logistics producers. Wissink — who rates Walmart's stock a Buy — adds the retailer has "leading scale" that allows it to get the best inventory from suppliers at the best possible price. 

Meanwhile, Bank of America (BAC) analyst Robby Ohmes says Walmart was way out in front of the shipping crisis. The company's inventory is up more than $3 billion versus 2019 levels according to Ohmes' research, reflecting execs ordering inventory earlier than usual as to avoid empty shelves. 

For Walmart, that is likely to equate to better in stock positions and fewer missed sales opportunities come the holiday season. 

Similar to Wissink, Ohmes thinks Walmart's scale gives it advantages at the ports not afforded to smaller retailers. He believes Target (TGT) shares these size benefits as well.

"Target and Walmart should benefit from more favorable port access, long-term container shipping agreements and chartered vessel capacity that continue to limit reliance on spot markets and ensures that both companies have the capacity they need for Holiday. Both companies are well positioned to mitigate trucking freight cost pressures given long-term contracts and (in Walmart's case) an in-house trucking fleet that is not facing significant labor shortages or cost pressures," says Ohmes.

Both retailers are top stock picks by Ohmes into the holidays. 

That said, investors appear to be taking a wait-and-see approach on Walmart circumventing port challenges and inflationary pressures. 

Walmart's stock is down 3% year to date, lagging the S&P 500's 18% gain (^GSPC). In the last month alone, Walmart's stock has dropped 2.7%

But the Walmart bulls on the Street remain out in force. 

"Food cost inflation has meaningfully accelerated, which only adds to the pressure created by issues like freight and labor; we like Walmart's relative position against this backdrop – it has scale with vendors, its price gaps to grocers have only expanded during COVID, and there is evidence of price increases. The market has been concerned about Walmart's desire to pass through rising costs, but it does seem like the company is focused on balancing the interests of shareholders and customers," says Wells Fargo (WFC) analyst Ed Kelly.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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