Buy Walmart stock for 21% upside as the company is positioned to weather a consumer slowdown later this year, JPMorgan says

• JPMorgan upgraded Walmart to 'Overweight' from 'Neutral' and raised its price target to $81.
• The bank highlighted Walmart's ability to grow during uncertain economic times.
• "The stock adds a strong balance of defense and offense on both the top and bottom lines in a soft consumer backdrop," JPMorgan said.

Walmart stock is trading at record highs, but JPMorgan thinks it's still a great buy for investors.

The bank upgraded the retail giant to "Overweight" from "Neutral" in a note on Monday and increased its price target to $81 from $66. That represents potential upside of 21% from current levels.

According to the bank, Walmart can play both offense and defense when it comes to growing its business during uncertain times. That's important as the US consumer shows signs of slowing down heading into the second half of 2024, according to the bank.

"We believe the stock adds a strong balance of defense and offense on both the top and bottom lines in a soft (to softening) consumer backdrop with a highly uncertain 2H24 ahead," JPMorgan analyst Christopher Horvers said.

Horvers said Walmart is in a good position to beat Wall Street estimates on revenue and profits going forward as it benefits from market share gains thanks to a consumer that is "highly value oriented."

Walmart's value proposition is showcased in its grocery business, which has helped the company significantly increase its market share.

The company's strength in groceries, combined with leverage over its supply chain, should help grow profit margins going forward.

"On the broader supply chain front, its multi-year efficiency program could add up to 100 bps of cost efficiency for WMT to partially reinvest in price as it drives share," Horvers said.

But perhaps most important to Walmart is its growing profits from "alternative profit pools," which include its third-party fulfillment business, Walmart+ subscription, and growing advertising business.

"As WMT US improves/expands its advertising and fulfillment services offerings, it sets the stage to grow the number of sellers on its marketplace, as well as the breadth/depth of existing sellers' assortments, both of which help drive general merchandise penetration. Said another way, a flywheel is forming between its topline, operational, and alternate profit pool strategies," Horver said.