Digital growth is improving Walmart’s business, but sustaining lower prices while funding automation limits earnings growth. My forecast allows continued margin improvement, yet does not support the earnings expectations needed to sustain today’s valuation.
Key points
- 5.4% operating margin in FY2028 would support today’s price at my earnings multiple.
- 4.75% operating margin is my FY2028 forecast despite continued digital gains.
- $3.5 billion cash shortfall followed investment and shareholder payouts in the first half of FY2027.
The call
The market is too optimistic about how quickly growth becomes profit. At 30 times annual earnings, today’s price requires roughly 24% operating-profit growth in FY2028 if sales rise 5%. That means keeping substantially more profit from each dollar sold while maintaining lower prices.
Investment and shareholder payouts exceed operating cash ($ billions)Source: Walmart Q2 FY27 10-Q, August 28, 2026; six months ended July 31, 2026.
I expect improvement, not that leap. Digital advertising and delivery should lift profit, but depreciation, fuel and price reductions absorb part of the gains. November’s results will test whether discounts attract enough additional shopping. The refund-assisted summer quarter is not a sustainable earnings baseline.
Valuation
| My forecast or assumption | Figure |
|---|
| FY2028 net sales | $775 billion |
| FY2028 operating margin | 4.75% |
| FY2028 diluted shares | 7.9 billion |
| FY2028 earnings per share | $3.16 |
| October 2027 earnings multiple | 30 times |
| Twelve-month target | $94.65 a share |
Earnings assume a 24% tax rate, $3.1 billion of net interest and $700 million belonging to minority owners; the target uses unrounded earnings. Thirty times earnings still rewards recurring membership revenue and improving delivery economics, but higher financing costs and heavy investment argue against paying more. The downside warrants a sell, although faster margin expansion could sustain today’s price.
What next year's operating profit margin means for the stockOur FY28 scenarios at 30 times earnings; October 8, 2026. Reference: verified October 7 price.
Risks
- Advertising and delivery could produce profits faster than forecast; watch margins after tariff-refund benefits fade.
- Lower prices could generate stronger shopping growth; watch transactions and merchandise volumes rather than pharmacy revenue comparisons.
- Investors could keep paying a higher earnings multiple; watch whether stronger cash generation accompanies continued digital growth.
What would change my mind
I would reconsider if refund-free operating-profit growth exceeds 15% for two consecutive quarters while cash remaining after capital spending improves year over year.