Wall Street is starting to kick the tires on Walmart

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Wall Street is starting to kick the tires on Walmart

Wall Street is beginning to kick the tires on shares of Walmart WMT ahead of the key holiday shopping season, which was modestly down for the year up until a week ago, compared to a gain of more than 15% on the S&P 500.

The latest bullish call from Goldman Sachs retail analyst Kate Mc Shane came on Monday from Kate McShane.

The stock currently trades at an 11% discount to its five-year relative P E average despite the company s improving financial algorithm and compares to the broadlines peer group which are all inline with better metric. We think the stock has sold off recently mainly due to concerns around the lower end consumer given rising gasoline prices as well as supply chain issues impacting companies with less pricing power. Walmart already has historically wide price gaps, so there is room for raising prices where needed, but more importantly, we think its value proposition should become more compelling for customers driving traffic and market share gains, although we recognize gas prices hold a somewhat inverse relationship to Walmart's same-store sales historically, explained McShane.

Walmart has placed Walmart's stock on the Strong Buy list of Target and removed Target TGT McShane sees Walmart's stock reach $194 over the next 12 months, up from $184 previously.

Shares of Walmart climbed 2% on Wednesday to $144.54.

Aber McShane's latest comment on Walmart isn't just a valuation one.

The veteran retail analyst says Walmart's fundamentals warrant another look by investors as they continue to improve in key areas.

After several years of investment largely in e-commerce and its supply chain weighing on profitability, we think Walmart is now in a position to grow EBIT earnings before interest interest and taxes dollars along with continuing investments due to the larger scale of its e-commerce business today, improving mix and growth from higher margin ancillary businesses like advertising Walmart Connect McShane added.

Other Wall Street analysts are also beginning to pound the table on Walmart but aren't ready to dismiss rival Target after its impressive results in 2021.

Walmart and Target entered 3 Q with strong inventory positions. Both retailers should benefit from more favorable port access, long-term container shipping agreements and chartered vessel capacity. Walmart and Target should gain share from smaller competitors this holiday that lack scale and face more shortages due to the challenging supply chain environment, said Retail analyst Robby Ohmes in a research note last week.

Ohmes thinks both retailers should see less labor cost pressure as they cycle sustained wage inflation last year and their market share gains in food as further reasons to be optimistic. Both stocks are top picks for Ohmes based on his research.

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