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Bullish Walmart analyst: The big retailer 'is poised to regain share'

Shares of Walmart are up more than 60% compared to 5 years ago.

Walmart (WMT) stock was higher on Thursday after one veteran analyst upgraded the stock and raised his price target, saying Walmart's foot traffic is trending higher.

"Management’s diligent work to pivot the business to omnichannel, divest non-core assets, and invest in productivity has positioned traffic and margins for upside over the next two years," Evercore analyst Greg Melich said in a note, upgrading shares from in-line to outperform, as well as price target to $160.00, up from $145.00.

Some of those investments in its omnichannel strategy: its delivery service Walmart+ and its ad platform Walmart Connect, per the veteran analyst. Meanwhile, the retailer's app is also seeing an uptick in downloads. So far this year, downloads are close to 2 million, only slight lower than Amazon (AMZN), but higher than Target (TGT), Costco (COST) and BJ's (BJ).

Now as consumers, including high-income shoppers, turn to Walmart for value amid inflation, the retail giant is getting a boost in foot traffic. While still below pre-pandemic levels, foot traffic, customers visiting the store, was up 2% in Q4. Same store sales? Up 8% and the average purchase was up 7%.

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"The traffic turn appears to be building, and with consumers across the demographic spectrum making wallet allocation choices after several years of record nominal retail spending, Walmart is poised to regain share," Melich said.

Later in his note he said, "Difficult times can also prove a catalyst for engaging new customers with Walmart, as Walmart’s core strengths in value and selection take on greater import (importance)."

In the latest quarter, Q4, the crucial holiday period for retailers, total earnings came in at $5.81 billion, far higher than $3.6 billion in the year-earlier period. In the full fiscal year, total earnings came in slightly lower year-year-over. FY2023 saw $11.29 billion in total earnings. FY2022: $13.94 billion.

Next week, Walmart is set to host its 2023 Investment Community Meeting. Melich said "we might be early" on these predictions, "as the April analyst day could pose a risk if management tries to bludgeon the Street to their guidance range."

"That said," he added, "with traffic momentum and margin expansion likely amidst a decelerating Retail world we like Walmart’s scale, balance sheet and stability."

Other reasons for optimism: Melich said Walmart's subsidiary, wholesale retailer Sam's Club, is "building loyalty, traffic and renewal rates," making up 14% of sales. "Sam’s comps (comparable sales) have averaged double-digits the past three-years," he said. Plus, Walmart's international profile, Walmex and Canada, also "remain strong," making up 10% of sales, while China and India "could see better sales and profit momentum as the world heals from COVID."

MIAMI, FLORIDA - JANUARY 24: Customers exit a Walmart store on January 24, 2023 in Miami, Florida. Walmart announced that it is raising its minimum wage for store employees in early March, store employees will make between $14 and $19 an hour. They currently earn between $12 and $18 an hour. (Photo by Joe Raedle/Getty Images)
Store traffic on the up and up? A Miami Walmart. (Photo by Joe Raedle/Getty Images) (Joe Raedle via Getty Images)

Shares of Walmart are up roughly 62% in the past five years. Still, Melich said buying in now could lead to a big return. Shares of the retail giant are outpacing the S&P 500 (^GSPC), which are up a little over 50% in the past five years.

Melich is one of many bullish analysts on the Street when it comes to Walmart. As of Thursday morning, there are 36 buys and 11 holds on shares, and no sells.

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.