Walmart added to America's Conviction List

Goldman Sachs shares rose on Tuesday after Walmart placed the titanic retailer on its America's Conviction List, while removing the rival Target TGT whose shares also gained.

We are adding Buy-rated TMT to the list and removing buy-rated WMT, while remaining constructive in fundamentals for both companies into 2022, wrote Goldman analyst Kate McShane.

We believe WMT was one of the strongest stories at the Goldman Sachs Retail Conference in September, given the company's continuing ability to grow earnings before interest and taxes along with continued investments which will gain investor attention as the company executes over the coming year. Walmart closed recently by doing a $144.32 up 1.9 per cent trade. It has eased 1 percent for the year to date amid fierce competition in the retail industry.

McShane has a price target of $184 for the stock of Bentonville, Ark. After the recent stock underperformance as we think the company is in a position to take share and do it more profitably into 2022, McShane said.

We think WMT is in a position to grow EBIT dollars along with continued investments due to the greater scale of its e-commerce business, improving mix and growth from higher margin accounting businesses like advertising. As for Target, the stock has twiced up 140 per cent since it was added to the confirmation list on March 3, 2020. The performance compares with a 49 per cent gain on the S&P 500 over the course of the five years, McShane said.

But she likes the Minneapolis company because of market share gains, compelling gross margin, a solid inventory position in the second half and a solid valuation.

McShane has a price target of $281. Recently, Target went to $256.21, up 1 per cent.