By Tonya Garcia
Walmart Inc. was downgraded to sector weight from overweight at KeyBanc Capital Markets with concerns that the retail giant could be hurt alongside its key middle-class customers and feel wage pressure.
“Since our initiation, Walmart has undergone a transformation into arguably one of the strongest omnichannel U.S. retailers,” wrote KeyBanc analysts in a report looking ahead to internet retail in 2022.
“However, we believe that the lack of stimulus tailwinds and continued inflationarypressure may disproportionately impact Walmart’s ‘middle of the middle’ U.S. consumer near term. Walmart is also the largest private U.S. employer (2.3 million-plus employees), and we think wage pressure will continue to intensify.”
Like many other companies and consumers, Walmart /zigman2/quotes/207374728/composite WMT -6.79% is taking a hit from inflation, which is adding one more factor to the comparison with last year when shoppers received government stimulus payments.
On the other hand, analysts maintained their overweight stock rating for Target Corp. /zigman2/quotes/207799045/composite TGT -24.93%
“Overall retail wage inflationary pressures are likely to impact Walmart disproportionately,” wrote analysts led by Edward Yruma.
“Food inflation will be more impactful to Walmart given its focus on grocery (56% vs. 20% at Target), and we think Target’s more affluent consumer base will prove more resilient.”
Analysts also call out the executive departures from Walmart. On Thursday, The Wall Street Journal reported that the company’s U.S. e-commerce head, Casey Carl, would be leaving. Walmart’s chief merchandiser and chief customer officer are also stepping down.
“While Walmart has a very deep management bench, we continue to monitorchanges closely given the success of the team,” KeyBanc said.
Walmart stock is down 3.2% over the past year. Target has gained 13.6% for the period.
KeyBanc expressed confidence in Etsy Inc. /zigman2/quotes/202790087/composite ETSY -10.47% , upgrading that stock to overweight from sector weight. Etsy has “a 3x revenue opportunity long term,” according to the research group’s new “Key 3x framework.”
“In terms of TAM [total addressable market], we believe that Etsy has made significant strides in lowering buyer friction,” KeyBanc wrote.
“Etsy participates in a number of sizable verticals (home décor, apparel, jewelry), but the perceived friction (delivery time) of the platform has always been an inhibitor to wider adoption.”
Etsy has also made acquisitions, including Depop , which taps into Gen Z and the growing secondhand retail trend.
“More importantly, our channel work has affirmed that Depop is viewed as a leading Gen Z and millennial apparel resale site, and in particular, is viewed as a source of trend-right apparel. We think this serves as a key differentiator to other sites,” KeyBanc said.
Etsy shares have fallen 10.6% over the last 12 months.
And KeyBanc downgraded WW International Inc. /zigman2/quotes/200896816/composite WW -8.42% , formerly Weight Watchers, to underweight from sector weight. Analysts say that the response to the company’s new PersonalPoints Program has been “mixed, and we think skews negative.” And the company’s move towards an app-based interface has lowered the level of ease for users who would prefer to head to the website.
In addition, WW is faced with a shifting perception of dieting and body image.
“The anti-diet movement is gaining steam and there has been a shift in diet culture among Gen Z and millennials, with a greater focus on body inclusivity,” KeyBanc said.
“As a result, recent news reports on dieting and weight loss have placed greater emphasis on mindful/intuitive eating as a more effective, and often safer, meansfor long-term weight loss and/or weight management.”
WW stock has sunk 50.4% over the past year. The benchmark S&P 500 index /zigman2/quotes/210599714/realtime SPX -4.04% has gained 14.1%.