Walmart Joins BofA US-1 List While Costco is Removed

Bank of America analysts have made significant changes to their US-1 list, adding Walmart (NYSE: WMT) and removing Costco (NASDAQ: COST). This decision comes as BofA highlights Walmart's impressive performance in various areas.

Walmart has demonstrated strong share gains across multiple product categories and income groups, especially among higher-income consumers. The company's multi-channel strategy, which incorporates enhanced online offerings, store remodels, and an increase in Walmart+ memberships, is bolstering its market position. Analysts predict that these positive trends will continue into the following quarters.

As the holiday season approaches, Bank of America notes that Walmart's advanced digital capabilities are likely to stand out. The bank expects an increase in online spending to further enhance Walmart's e-commerce performance.

Moreover, Walmart has seen remarkable growth in its digital advertising segment, which has effectively improved its profit margins. According to BofA, "We anticipate ongoing gross margin expansion for Walmart, as the growth in high-margin businesses—such as digital advertising, third-party marketplace fees, and fulfillment services—will help compensate for any potential declines in general merchandise sales, which currently lag behind the lower-margin grocery and health categories."

Additionally, Walmart is reportedly making significant progress in reducing losses in its U.S. e-commerce operations, noting a 40% decline in net delivery costs per order compared to the previous year.

Although Walmart's current price-to-earnings (P/E) ratio of around 33-34x surpasses its historical average, Bank of America analysts justify this premium by pointing to the retailer's ongoing transformation and its strong positioning for the future.

On the other hand, while Costco remains a reliable performer in the retail sector, it faces challenges due to tough market comparisons, responses from competitors, and limited earnings per share (EPS) growth following its recent membership fee hike. With its P/E ratio currently at an all-time high of approximately 50x, Bank of America believes Costco has less room for further valuation growth compared to Walmart.

Walmart, Costco, Retail