CORRECTED-BREAKINGVIEWS-Walmart offers 13-digit ode to consistency

By Sebastian Pellejero

NEW YORK, Feb 4 (Reuters Breakingviews) - Wall Street may worship disruption and the promise of new platforms that reshape how humans work, shop and think. Yet Walmart WMT.O has now crossed $1 trillion in market capitalization by stocking shelves better than its competition for over half a century. The retailer's triumph suggests that focus brings more reliable rewards than chasing moonshots. Still, even discipline has a price.

Since 1970, Walmart shares have generated an annualized total return of roughly 19%, a streak that the market’s technology champions can't match in consistency or duration. Starting from rural Arkansas, the company's formula seems simple in hindsight. The firm carried everything customers needed in a single location, clustered stores and warehouses so delivery trucks run efficiently, and invested in logistics as the technology improved. Much of profit was plowed back into keeping prices as low as possible, bringing shoppers back week after week.

Missteps happened, but Walmart has made them manageable. Online retailer Jet.com cost $3.3 billion before being shut down. An ill-fated German expansion delivered a $918 million write-off. Flipkart, its Indian e-commerce platform, has absorbed roughly $16 billion and notably remains unprofitable. Yet even that bet sits comfortably against the $14.5 billion in free cash forecasted for Walmart's latest fiscal year, according to Visible Alpha estimates. Wins also overpower losses: in Mexico, the company has built a retail operation now worth $55 billion.

Investors may genuflect to the architects of artificial intelligence, but Walmart now earns a tech-style multiple for the pedestrian act of getting goods into stores on time. On enterprise-value-to-next-year's estimated EBITDA, America's largest retailer commands a 22-times multiple, well above retail peers like Target TGT.N and even higher than Alphabet GOOGL.O, Amazon.com AMZN.O, and Microsoft MSFT.O.

As AI bubble fears, a higher cost of capital, and policy whiplash in Washington take hold, predictable cash streams are becoming increasingly fashionable. Walmart sells household essentials at a profit. Meme stocks and intelligence peddlers face existential questions about whether their business models can generate cash flow. When uncertainty is the only certainty, durability can seem more attractive than disruption.

Investors are edging in that direction. The S&P 500's consumer staples sector is up over 10% year-to-date, while the technology sector has slipped 3%. This shift brings its own danger. Walmart stock now changes hands at roughly 43-times next year's earnings. On a 10-year average of inflation-adjusted earnings, the S&P 500's multiple now sits at 40. Both valuations are just shy of their 1999 peak. This week's software stock meltdown shows lofty valuations matter. Even shares in reliable businesses, when priced to perfection, can still disappoint.

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CONTEXT NEWS

Walmart became the first retailer ever to hit $1 trillion in market capitalization on February 2, riding on a year-long rally that has seen its share rise nearly 26%.