Morgan Stanley resets Walmart forecast on high inflation

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Strip out the cost of higher fuel prices and the impact of fresh grocery price rollbacks, and underlying gross margin expansion was meaningfully stronger.

The mix shift toward advertising and membership is doing the heavy lifting, since both are far more profitable than selling groceries or general merchandise.

Where the near-term profit pressure is coming from

The market sold the stock because Walmart’s revenue outlook for the next quarter came in slightly below Wall Street’s expectations, per FinancialContent. The miss was small, but enough to spook investors looking for a clean beat.

Morgan Stanley says Walmart’s operating profit still grew in the low single digits last quarter once you strip out currency swings, and the drag on profits is easy to spot:

• Higher fuel expenses tied to the energy spike

• Associate enrollment costs in benefit programs

• Medical cost inflation hitting health insurance

The bank also nudged its earnings forecasts for the next two fiscal years slightly lower, a minor trim rather than a meaningful cut. Walmart’s full guidance and risk factors sit in its SEC filings.

How WMT stacks up against Amazon in the retail share fight

WMT is still up roughly 7.9% year-to-date even after Thursday’s drop, FinancialContent notes.

In the battle for new retail spending, Walmart and Amazon (AMZN) are still grabbing the lion’s share. Walmart pulled in close to 8 cents of every new dollar Americans spent at retail in the first quarter, a step down from the prior quarter.

Amazon stayed well ahead, accounting for roughly a fifth of incremental retail spending, though its share also cooled from the previous quarter.

Together, the two giants captured nearly 30 cents of every additional dollar shoppers spent, according to Census Bureau data cited by Morgan Stanley. The pie is getting split a little wider, but the same two players are still doing most of the eating.

What still needs to happen for the $140 target to play out

Morgan Stanley’s $140 target assumes investors will keep paying a steep premium for Walmart’s low-price strategy, roughly double what they’ve historically paid over the past decade.

This premium reflects a bet that Walmart’s low-price strategy is quietly building a much more profitable business underneath.

For $140 to materialize, the bull case needs:

• U.S. comparable sales accelerating to mid-to-high single digits

• Sustained eCommerce growth above 40%

• Walmart Connect and membership scaling without diluting margins

The bear case kicks in if eCommerce losses re-expand or U.S. online growth slows below 15%.

The takeaway for WMT investors

Morgan Stanley is essentially telling investors that the recent selloff was due to near-term noise and that the long-term buy signal still holds.

The eCommerce flywheel, the widening grocery price gap, and the mix shift toward advertising and membership are intact, Walmart’s investor relations data shows.

Walmart remains a 52-year Dividend Aristocrat with a conservative payout ratio, giving management room to keep returning cash even if profit flow-through stays choppy.

For long-term investors, the question is whether you trust Walmart to keep widening the gap on Amazon and traditional grocers through another inflationary cycle.

The setup looks similar to past cycles when WMT used pricing power to gain share, and Morgan Stanley is betting it works again.

Just don’t expect a quick rebound. At 43 times earnings, this stock needs profit, not just promises.

Related: Morgan Stanley resets Dell stock price target

This story was originally published by TheStreet on May 24, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.