On Monday, Walmart Stores (WMT) officially bought online retailer Jet.com for $3 billion. This buyout has been hyped for some time, as Jet.com is popularly known as the “Amazon killer”. I last checked in on Walmart back in May. At the time, the retailer was suffering from decelerating sales and lackluster buying pressure. Has WMT made a turnaround since then? Will Jet be a game changer? Let’s find out.
First, let’s take a look at what Walmart was willing to pay $3 billion for. In just two years, Jet.com has caused quite a stir in the e-commerce industry. Jet.com is known for its “Prices Drop as You Shop” policy. That is as shoppers add more items to their carts, the price-per-item decreases.
Prior to the buyout, Jet had big plans. It expected to ship $20 billion worth of merchandise by 2020. According to Walmart, Jet has been adding 400,000 shoppers each month, and it’s already selling over $1 billion in merchandise each year.
It’s no secret that Walmart plans to leverage Jet.com in its battle with Amazon, which is the country’s top e-commerce player. Currently, Walmart.com sells 11 million products and is introducing more third-party sellers. However, its e-commerce sales are growing in the mid-single digits, compared with the industry’s double-digit average growth rate.
So Walmart has high hopes for this acquisition over the long run. In the meantime, management expects the deal to negatively impact this year’s EPS. While the earlier guidance estimated a $0.05 dilutive impact to EPS, Walmart announced on Monday that it anticipates additional dilution.
As for me, I consider Walmart a cautious buy. While the company is still experiencing anemic sales growth, it has improved its fundamentals of late. In Portfolio Grader, WMT currently earns a B for its Fundamental Grade, and a B for its Quantitative Grade. And, with its 2.7% annual dividend yield, WMT is also a solid dividend stock. In Dividend Grader, WMT also earns a B-rating.
It’s too soon to sell how the Jet acquisition will play out, but it’s encouraging that Walmart’s core businesses are strengthening. I’ll be keeping an eye out for Walmart’s third-quarter earnings report in mid-November; it should give us a better picture of how the retailer’s rebound is going.