Wal-Mart (NYSE: WMT) shares rose 2.82% yesterday after Citigroup (NYSE: C) upgrade the blue-chip stock from “Hold” to “Buy” and increased the mega-retailer’s price target to $65.00, up from $54.00.
Citibank said that Wal-Mart is willing to do what it takes to win the price war in the food retail business.
In the company’s research note, Citibank said that it may be losing customers that it picked up during the recession as other companies focus on value. Wal-Mart saw a slight decrease in customer traffic from the fourth quarter in 2009. Citi said that the decline might be an indication that low prices are not enough of a reason to switch from the convenience of shopping in super markets. Citi says that it believes Wal-Mart will ramp up its price rollbacks in order to combat this trend.
Citi noted that same store sales at stores with “both Clean Action Alley and the Smart Network are outperforming the company average as well as stores with only one of these initiatives. Customers are finding it easier to navigate the store, which is leading to larger basket sizes and higher ticket.”
Citibank is raising Wal-Mart’s FY-2010 earnings per share estimate from $4.04, up from $4.00. The company’s $65.00 price target is based on a 16x multiplier of the company’s FY-2010 price to earnings ratio.
