Walmart Upgraded, Costco Downgraded at Truist

Truist analysts have made significant changes to their ratings for Walmart and Costco, upgrading Walmart to a Buy rating while downgrading Costco to Hold in separate notes released on Tuesday.

Truist has identified strong momentum in Walmart’s capacity to capture market share across various income levels. The firm highlights that Walmart is making gains due to its emphasis on pricing, convenience, and product variety.

The analysis notes that Walmart’s growth is largely fueled by higher-margin revenue sources such as advertising, membership, and its marketplace. These avenues not only enhance profits but also aid in widening price differentials, allowing Walmart to further expand its market presence.

Consequently, Truist views Walmart as a robust player in the market, describing it as both an “offensive and defensive mega-cap” worthy of a valuation that is significantly higher than historical averages. Following this positive assessment, the firm has increased its price target for Walmart to $89 from a previous target of $76.

On the other hand, Costco has seen its rating modified from Buy to Hold. Truist acknowledges the strength of Costco’s business model, stating that it is continuing to gain market share across nearly all retail categories and possesses some of the highest barriers to entry in the market.

However, Truist points out that recent operational changes, such as the implementation of ID scanning at store entrances and modifications to chicken packaging, may lead to some sales challenges. Additionally, the firm suggests that key growth drivers for Costco may now be behind the company, while the stock’s valuation has reached a point of concern, currently trading at approximately 54 times forward earnings—marking a multi-decade high.

With Costco’s stock having appreciated around 60% over the past year, Truist concludes that the current valuation offers “little room for error” and expresses a preference for a more favorable re-entry point in the future.