Walmart (WMT)

Shares of long-time retail behemoth Walmart (WMT) recently broke out to hit a new all-time high of $158 and change per share. Led higher by a robust quarter that saw effective navigation through global supply chain challenges, Walmart stock finally looks ready to leave the rest of this market behind. I remain bullish on WMT stock.

Inflation and supply chain woes are the main concern for a wide range of firms. Some firms, like Netflix (NFLX), may not have nearly as much pricing power as investors expected initially, and that’s largely due to competitive forces and the unwillingness of consumers to pay more for the same.

Inflation: Don’t Overestimate a Firm’s Pricing Power

Indeed, inflation is here, but wages have yet to catch up to the blistering pace of price increases. It’s not a mystery as to why many may be more inclined to do away with their Netflix subscriptions to resist the devastating impact of inflation on one’s personal monthly budget.

With all the rivals emerging in video streaming, it should have come as no mystery to see considerable Netflix subscription cancellations in its latest quarter. With such price increases and a password crackdown to prevent “freeloaders,” Netflix could face further pain as its subscribers move on.

In prior pieces, I noted the likelihood that Netflix was overestimating its pricing power, even amid broader inflation. With a password crackdown thrown in, many paying subscribers may opt to ditch Netflix altogether, given the inherent value in a subscription lies in entertaining a larger group of individuals for the posted price.

Undoubtedly, Netflix is in a fiercely-competitive space, and it’s losing its dominance. With a loss of dominance comes the loss of pricing power. Ultimately, Netflix may stand to be a loser amid the recent surge of inflation, as subscribers flee at the first scent of price hikes.

On the other hand, Walmart has been one of the winners in this inflationary environment.

Walmart Flexes Muscles amid Inflation

Yes, retail is competitive, but few retailers can offer a value proposition that matches the retail behemoth. Further, Walmart can absorb some of the impacts of inflation, beckoning in customers from other retailers that couldn’t afford to take the hit of higher prices.

Now, Walmart is still boosting prices where it makes sense. It’s just doing a better job of alleviating the pain customers feel when they notice that the price of a good has risen.

For now, Walmart seems just fine passing on the added savings from its considerable purchasing power. Customers surely appreciate it, and Walmart could continue to feel the boost well after inflation is brought back down to more manageable levels by the U.S. Federal Reserve.

As inflation passes, an economic slowdown could be next, given the growth-cooling effect of interest rate hikes. As a defensive staple, Walmart is well-positioned to continue doing relatively well if we are to fall into a recession.

Price Hikes or Sales Boost? Why Not a Bit of Both?

In terms of pricing power, Walmart looks to have way more than Netflix. Still, Walmart isn’t in a rush to hike prices, even though such hikes won’t have customers running for the hills over to a competitor. Such a move is prudent and could allow Walmart to continue gaining share in a competitive market environment.

Perhaps Netflix could take a few tips from the managers over at Walmart. Even if you have pricing power, you don’t need to exercise it all at once to bolster near-term financial results, especially if you’re operating in a highly-competitive market like retail of video streaming on-demand.

As more consumers flock to Walmart to avoid higher prices on food and other products, look for more to consider the convenience- and value-adding offering provided by a Walmart+ membership.

The service could experience major growth, and it is growth that could prove very sticky as consumers double down on money-saving initiatives during their weekly grocery hauls.

Wall Street’s Take

Turning to Wall Street, WMT stock comes in as a Moderate Buy. Out of 23 analyst ratings, there are 17 Buy recommendations and six Hold recommendations.

The average Walmart price target is $164.86, implying 4.6% upside potential. Analyst price targets range from a low of $136.00 per share to a high of $185.00 per share.