Walmart Inc.

Valuation: Premium Pricing for a Premium Transformation

Walmart trades at a trailing P/E of 45x, a price-to-book ratio of 9.5x, and an EV/EBITDA of 80.8x — all figures that would have been unthinkable for a grocery-anchored retailer five years ago. For context, the consumer staples sector average P/E hovers around 22-25x, meaning Walmart commands nearly double the sector multiple.

The market is pricing in two structural shifts. First, Walmart's advertising business (Walmart Connect) is growing at 20%+ annually and carries margins far above the core retail operation. Second, e-commerce penetration continues to rise, with online sales now representing a meaningful share of total revenue. These higher-margin revenue streams are gradually shifting Walmart's earnings mix upward.

However, the stock's current earnings yield of just 0.45% sits below the risk-free rate on 10-year Treasuries. The free cash flow yield of roughly 1.5% ($14.9 billion FCF on a $981 billion market cap) is also thin. Investors are essentially paying a growth-tech multiple for a business that still generates 75% of its revenue from physical stores.

Earnings Performance: Four Quarters of Accelerating Revenue

Walmart's fiscal year 2026 tells a story of consistent execution. Revenue climbed every quarter, from $165.6 billion in Q1 to $190.7 billion in Q4 — a 15.1% acceleration across the fiscal year. Full-year revenue exceeded $713 billion, with gross margins holding steady around 24.7-25.2%.

Q4 delivered $190.7 billion in revenue with a gross profit of $47.0 billion (24.7% margin) and operating income of $8.7 billion. Diluted EPS came in at $0.53 for Q4, bringing full-year EPS to $2.74. The Q4 EPS figure appears low relative to other quarters, but this reflects seasonal inventory dynamics and a higher effective tax rate of 32.7% in the quarter.

The strongest quarter was Q2 (July 2025), which posted $177.4 billion in revenue and $0.88 EPS on a lower 23.3% effective tax rate. Operating margins ranged from 3.7% to 4.6% across the year, reflecting the tight-margin reality of mass retail even at enormous scale.

Financial Health: $41.6 Billion Cash Machine With Heavy Investment

Walmart generated $41.6 billion in operating cash flow in FY2026, up 14% from $36.4 billion the prior year. This is an extraordinary cash generation engine — only Apple, Microsoft, and a handful of energy majors produce more operating cash flow.

Capital expenditure ran at $26.6 billion, reflecting Walmart's aggressive investment cycle in store remodels, supply chain automation, and e-commerce fulfillment infrastructure. This leaves roughly $14.9 billion in free cash flow, which funded $7.5 billion in dividends and $8.1 billion in share buybacks.

The balance sheet carries $67.1 billion in total debt against $99.6 billion in stockholders' equity, yielding a debt-to-equity ratio of 0.67x — conservative for a business of this scale. Cash on hand stands at $10.7 billion. The current ratio of 0.79x is below 1.0, which is typical for large retailers that operate on negative working capital (collecting from customers before paying suppliers).

One metric worth watching: net debt-to-EBITDA sits at 4.5x, slightly elevated compared to Walmart's historical range of 2-3x. This reflects the heavy capex cycle and recent debt issuance to fund automation investments.

Growth and Competitive Position: The Moat Widens

Forward Outlook: Analysts See Steady Growth but the Bar Is High

Analyst consensus estimates project Walmart's quarterly revenue reaching approximately $216-225 billion by FY2029 (calendar 2028-2029), representing mid-single-digit annual revenue growth. EPS estimates for FY2029 quarters average $0.80-$1.00, suggesting continued earnings expansion.

The dividend yield of approximately 0.20% is modest, but Walmart has increased its dividend for 52 consecutive years — making it a Dividend Aristocrat. The payout ratio of roughly 34-44% of earnings leaves ample room for continued increases.

Key catalysts ahead include the continued rollout of advertising monetization, margin expansion from automation investments, and potential market share gains during economic uncertainty (consumers trading down to Walmart). Risks include tariff-driven cost inflation, a potential consumer spending slowdown hitting lower-income households disproportionately, and the high valuation leaving little room for execution missteps.

Walmart's next earnings announcement is scheduled for May 14, 2026, which will provide the first quarter of FY2027 results and fresh guidance.

Tariff Risk and the K-Shaped Consumer

Recent headlines highlight two forces testing Walmart's thesis. First, the tariff environment remains volatile — Trump's latest proposal to increase global tariffs to 15% would directly impact Walmart's supply chain costs, given its massive import volume of consumer goods, electronics, and apparel. The Supreme Court's recent ruling striking down parts of the reciprocal tariff framework adds further uncertainty.

Second, the K-shaped economy is creating divergent outcomes for retailers. Higher-income consumers continue spending freely, while lower-income households face pressure from inflation, higher interest rates, and reduced pandemic-era savings. Walmart straddles this divide — it benefits from trade-down behavior (affluent shoppers switching from specialty retailers) but faces headwinds if its core lower-income customer base pulls back on discretionary spending.

Management has historically navigated these cycles well, using Walmart's price leadership positioning to gain market share during economic stress. The company's grocery business (roughly 60% of U.S. revenue) provides a defensive floor, as food purchases are non-discretionary. But the general merchandise categories that drive higher margins remain cyclically sensitive.