Walmart Inc. (WMT) stock intrinsic value fair value estimate & owner earnings analysis

Walmart is the world's largest retailer: Walmart U.S. supercenters and neighborhood markets, Sam's Club warehouse clubs, and Walmart International (majority-owned Walmex in Mexico and Central America, Flipkart and PhonePe in India, plus Canada, China, Chile and Massmart in Africa). Revenue for the year ended January 31, 2026 was $713 billion. About four-fifths of sales are in the United States. Around the stores it has built higher-margin businesses: advertising (Walmart Connect, plus Vizio, bought in December 2024), Walmart+ and Sam's Club memberships, and a third-party marketplace. How we measure earnings. We start from operating cash flow and take out working-capital swings, stock compensation and the cost of keeping the business as it is. Operating cash flow is very steady: $24-42 billion a year over the last decade, and it rose through the 2020 shutdown. The hard part is capital spending. It was about $10-11 billion a year through fiscal 2021. It then climbed to $26.6 billion in fiscal 2026 for supply-chain automation, eCommerce fulfillment, technology and store remodels. In fiscal 2026 Walmart U.S. spent $16.5 billion on supply chain and technology, $5.6 billion on remodels and $1.4 billion on new stores. We treat almost all of this spending as the cost of staying competitive with Amazon and Costco, not as optional growth. Only the share that matches sales growth at Walmart's ten-year average spending rate (about $0.8 billion in fiscal 2026) counts as growth. Stock compensation is a real cost and has risen from $0.6 billion to $3.6 billion over the decade. On this basis owner earnings were $11.4 billion, or $1.42 per diluted share, in fiscal 2026, against reported net income of $21.9 billion. Capital spending is almost the whole gap. One-off items are kept out of the earnings level. These include the roughly $3.3 billion opioid settlement accrued in fiscal 2023, losses on the Asda, Seiyu and Brazil disposals, and gains and losses on investments such as JD.com. The earnings level. Asda (UK) and Seiyu (Japan) were sold in early 2021, so we measure from fiscal 2022 onward. Over fiscal 2022-2026 owner earnings ranged from $1.08 to $2.00 per share. Adding back the $2.8 billion a year of cash interest gives the cash the business makes before its lenders are paid. The median for that period is $1.77 per share (about $14.2 billion), which equals the fiscal 2026 figure. Owner earnings grew 8.8% per share in fiscal 2026. We assume no growth in fiscal 2027 because the first half of the year points the other way: capital spending jumped 24% to $14.2 billion while operating cash flow rose 7%, so cash left after capital spending was roughly flat. Base case. Sales grow about 3% a year from year 2. This is below Walmart's demonstrated record of 4.4% a year from fiscal 2017 to 2026, which includes the drag from divestitures. Its nominal sales also kept rising through the 2008-2010 recession. Margins stay where they are. No credit is given for advertising or membership lifting margins, or for capital spending easing back. Neither is secured yet. After year 10, earning power grows about 2% a year for fifteen more years and then stays flat. The support for this is Walmart's scale and store network: there is a store within about ten miles of most Americans, and nominal sales have grown in nearly every year for decades apart from divestitures. The business is worth about $329 billion ($41.16 per share). It owes about $56.6 billion ($7.08 per share). That leaves about $34 per share. Bear case. Walmart's own history supplies the downturn. In fiscal 2016-2017 wage and price investments cut operating income from $27.1 billion to $22.8 billion. It did not regain that level for close to a decade. This case repeats that pattern: business cash flow falls 10% in each of the next two years, for example from a price war, tariffs on imported goods or capital spending still climbing as the first half of fiscal 2027 suggests. It then grows only 2.5% a year and is barely back to today's level by year 10. After that it grows 1% a year for fifteen years. A general recession is not the main risk here; Walmart's sales rose through 2008-2010. The business is worth about $236 billion ($29.58 per share) and owes the same $56.6 billion, leaving about $22.50 per share. Bull case. Walmart's own levers work. Sales grow 4.5% a year, in line with its record. In years 3-6 the automation build-out matures, capital spending eases somewhat from today's 3.7% of sales, and the advertising and membership businesses keep the multi-year growth they have already shown. Cash flow then grows about 7.5% a year in those years. After year 10, growth runs at 2.5% for twenty years and then stays flat. The business is worth about $454 billion ($56.81 per share), leaving about $49.73 per share after what it owes. What it owes. At July 31, 2026: long-term debt of $39.9 billion, short-term borrowings of $10.5 billion and finance leases of $6.8 billion, against cash of $11.5 billion. We count only about $5 billion of that cash as surplus to running the stores. Most of the bonds carry long fixed rates averaging about 3.9%, and about $23 billion matures more than five years out. That cheap long-dated financing lowers the true burden of the debt by about $5.4 billion. Maturities over the next three fiscal years are modest: $3.5 billion, $3.2 billion and $3.4 billion. Interest of about $2.8 billion is covered about four times by business cash flow even at the low point of the bear case. We also subtract about $10 billion for outside shareholders' stakes in Walmex, Flipkart and other subsidiaries. Their cash flow is included in full above, and that stake is valued from their share of earnings over the past three years rather than from book value. Margin-of-safety price. We are confident in the cash the stores generate. We are much less sure how much capital Walmart must keep spending to defend it, and that is the main source of error. If capital spending settles near 4% of sales instead of 3.7%, owner earnings fall by roughly $2 billion a year, which takes about $6 per share off the value. If sales do not grow at all for a decade, value falls by about another $8 per share. If we are wrong on both, the shares are worth roughly $20. The worst plausible outcome is a long margin reset like 2016-2017 combined with capital spending that keeps rising. The business would survive that comfortably: the debt is long-dated and cheap, no customer matters much, the controlling Walton family's interests line up with other owners, and many stores and distribution centers are owned. Walmart pays a dividend over the holding period. It paid $7.5 billion in dividends in fiscal 2026 (about $0.94 per share) and has raised its dividend every year for more than fifty years. At $17 per share, owner earnings give a yield of about 8.4% and the dividend about 5.5%. With sales growing around 3%, the business itself implies roughly 11% a year before any change in the share price. If the shares reach roughly $40 within five years, which is where the base case points, the base case implies about 21% a year. The bear case still implies a positive return, around 13% a year. Above $17 the 20% target depends too heavily on the base case and on capital spending easing. The margin-of-safety price is $17. What would make this wrong: capital spending that keeps rising faster than sales (bearish), or evidence over several years that automation lets capital spending fall back toward historical levels while margins hold (bullish). Our previous estimate was prepared on a different basis, so those figures are not comparable with these.