Better Buy for 2022: Amazon vs. Walmart

According to a Mastercard Inc (MA) report, U.S. retail sales rose 8.5% during this year's holiday shopping season, powered by soaring e-commerce sales. Even though the Omicron coronavirus variant continues to spread, making the prospects bleak for brick-and-mortar retail stores, many retail companies have strengthened their online presence to benefit from online buying trends. However, the increasing physical store sales with the reopening of the economy should help retailers thrive in the upcoming months. According to a Research and Markets report, the global retail market is expected to grow at a CAGR of 7.7% by 2025. Therefore, both Amazon.com (AMZN) and Walmart (WMT) should benefit. 

E-commerce giant AMZN engages in the retail sale of consumer products and subscriptions internationally. It operates through North America; International; and Amazon Web Services. WMT engages in retail, wholesale, and other units worldwide. The company operates through Walmart U.S.; Walmart International; and Sam's Club. 

AMZN has gained 1,5% over the past three months, while WMT has returned 3.8%. Which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On December 15, 2021, WMT announced plans to build a new fulfillment center in Salt Lake City to support the retailer’s growing eCommerce business. Steve Miller, senior vice president of Supply Chain Operations at Walmart U.S., said, "This new facility is the latest of example of Walmart’s commitment to offering customers fast shipping on items they need every day, and we look forward to further delivering on that promise with the development of this new, state-of-the-art facility."

On December 2, 2021, Amazon Web Services, Inc., an AMZN company, announced AWS Cloud WAN, a managed wide area network service that makes it faster and easier for enterprises to build, manage, and monitor a unified global network that seamlessly connects cloud and on-premises environments. This could lead to increasing demand for its solution.

Recent Financial Results

WMT’s total revenue increased 4.3% year-over-year to $140.53 billion for the fiscal third quarter ended October 31, 2021. The company’s net income grew 39.8% year-over-year to $5.20 billion. Also, its adjusted EPS came in at $1.45, up 8.2% year-over-year.

AMZN’s net sales increased 15% year-over-year to $110.81 billion for the third quarter ended September 30, 2021. However, its net income declined 50.2% year-over-year to $3.15 billion. Also, its EPS came in at $6.12, up 50.5% year-over-year.

Past and Expected Financial Performance

WMT’s revenue and EPS grew at CAGRs of 3.8% and 17.5%, respectively, over the past three years. Analysts expect WMT’s revenue to increase 2.3% in the current year and 2.9% next year. The company’s EPS is expected to grow 7.9% in the current quarter and 17% in the current year. Moreover, its EPS is expected to grow at a rate of 8.1% per annum over the next five years.

On the other hand, AMZN’s revenue and EPS grew at CAGRs of 27.5% and 42%, respectively, over the past three years. The company’s revenue is expected to increase 21.8% in the current year and 17.7% next year. However, its EPS is expected to decline 73.4% for the fourth quarter of 2021 and 2% for the full year. AMZN’s EPS is expected to grow at a rate of 36% per annum over the next five years.

Profitability

WMT’s trailing-12-month revenue is 1.25 times what AMZN generates. However, AMZN is more profitable with a gross profit margin and net income margin of 41.31% and 5.73% compared to WMT’s 25.04% and 1.40%, respectively.

On the other hand, WMT’s ROA and ROTC of 7.45% and 12.07% are higher than AMZN’s 5.32% and 8.10%, respectively.

Valuation

In terms of forward non-GAAP P/E, AMZN is currently trading at 81.71x, 262% higher than WMT’s 22.57x. Moreover, AMZN’s forward EV/EBITDA ratio of 25.20x is 105.9% higher than WMT’s 12.24x.

So, WMT is relatively affordable here.

POWR Ratings

WMT has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. On the other hand, AMZN has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

WMT has a B grade for Growth and Sentiment, consistent with analysts’ expectations that its EPS will increase in the upcoming months. On the other hand, AMZN has a D grade for Growth and a C grade for Sentiment, in sync with analysts’ expectations that its EPS will decline in the near term.

Also, WMT has a B grade for Value, consistent with its forward EV/S of 0.80x, 59.9% lower than the industry average of 1.99x. However, AMZN has a D grade for Value, consistent with its forward EV/S of 3.72x, 161.3% higher than the industry average of 1.42x.

Moreover, WMT has a B grade for Stability, in sync with its beta of 0.52. In comparison, AMZN has a C grade for Stability, in sync with its beta of 1.13.

Of the 39 stocks in the A-rated Grocery/Big Box Retailers industry, WMT is ranked #3. However, AMZN is ranked #32 of 77 stocks in the F-rated Internet industry.

Beyond what I’ve stated above, we have also rated the stocks for Quality and Momentum. Click here to view all the WMT ratings. Also, get all the AMZN ratings here.

The Winner

The retail industry is expected to grow significantly with the rapid shift to online platforms amid rising consumer spending. While both WMT and AMZN are expected to benefit, I believe WMT is currently the better investment because of its robust financials, lower valuation, and better growth prospects.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Grocery/Big Box Retailers industry here. Also, click here to access all the top-rated stocks in the Internet industry.

AMZN shares were trading at $3,407.54 per share on Monday afternoon, up $73.20 (+2.20%). Year-to-date, AMZN has gained 4.62%, versus a 29.25% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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