Symbotic Tumbles On $550 Million Stock Offering As Softbank Slices Stake

By Jinjoo Lee |Photography by Thomas Simonetti for WSJ

Think tech stocks are expensive? Try Walmart.

America's biggest retailer has become a true investor darling. Its shares have risen about 27% this year, bringing its market value above $900 billion. The stock is now valued at roughly 40 times forward earnings, more expensive on that metric than six of the Magnificent Seven stocks such as Nvidia and Microsoft. Historically, it has traded at a multiple of about 23 times.

When Walmart moves its listing to the tech-heavy Nasdaq on Tuesday, its shares could move up another leg. Analysts at Morgan Stanley estimate that the Nasdaq inclusion could boost demand for Walmart's shares from passive investment vehicles — such as ETFs and index trackers — by $20 billion or more.

Few on Wall Street are betting against the retail giant. Only one Wall Street analyst out of the 42 that FactSet polls gives it a "sell" rating. As of September, Walmart was the least shorted stock in the S&P 500, according to BofA Securities.

Walmart's multiple has risen over the past three years as its supply chain and e-commerce investment paid off in higher profits. After many years of declining or flat earnings, Walmart's net income is set to grow at a double-digit percentage for the third consecutive year. But there could be a bit of froth building up, too. This year alone, its forward earnings multiple has expanded nearly 20%, even as analysts on average reduced earnings expectations for the upcoming fiscal year.

Bulls point to the powerful moat that Walmart has built over the years, especially in e-commerce. With improved online assortment and delivery, Walmart U.S. e-commerce sales have been growing at over 20% year over year in 10 of the past 11 quarters, according to Visible Alpha. Walmart can now deliver within three hours to 95% of U.S. households, up from about 76% two years ago, according to a report from BofA Global Research. This online growth helps Walmart generate high-margin revenue, such as advertising, membership fees and fulfillment services for third-party marketplace sellers.

It helps that competition looks weak: Target is still reeling from past mistakes and grocery giant Kroger failed to scale up after its Albertsons acquisition fell through.

But can Walmart keep delivering tech-like growth? Steven Shemesh, retail analyst at RBC Capital Markets, notes that Walmart is still in the early stages of expanding its high-margin businesses. Its ad revenue last year was roughly 8% of Amazon's. And only about 18 million U.S. households have signed up for Walmart's paid membership, a small fraction compared with Amazon's 107 million Prime members, according to estimates from Evercore.

Walmart's U.S. advertising business has indeed grown at a healthy year-over-year pace of about 30% in recent quarters. That isn't a huge number compared with Amazon, whose advertising business grew at a compound annual growth rate of about 42% since 2017 when its ad revenues were roughly Walmart's size. Shemesh says Walmart is "very measured" in increasing that business to make sure its website and app aren't flooded with ads. But the bigger concern is that Walmart today isn't operating in a white space as Amazon did many years ago. It also lacks exposure to nonretail-related growth areas such as Amazon's cloud business.

Far-out estimates should be taken with a grain of salt, but analysts expect Walmart's earnings to grow at an average annual rate of about 8% over the long term, according to S&P Global Market Intelligence. Among S&P 500 companies with an earnings multiple exceeding 30 times, Walmart ranks near the bottom on long-term earnings growth expectations, according to data from S&P Global Market Intelligence. (This excludes real-estate investment trusts, which distribute much of their taxable income to shareholders.)

If tech-like growth isn't in the cards, Walmart's multiple might be justified if it can achieve reliable, even if not eye-watering, growth in earnings and returns over a long period of time. Costco, for example, commands an earnings multiple higher than Walmart even with modest earnings growth expectations.

But what it lacks in flashiness, Costco makes up for in consistency that Walmart hasn't yet matched. Costco has seen growth in same-store sales every year since 2000 and delivered a return on invested capital exceeding 10% almost every year since 1998. The last time Walmart U.S. saw a same-store sales decline was in 2014, but it also suffered disappointingly slow growth from 2015 to 2017. And returns on investment have been patchier because of its aggressive spending.

Perhaps greater consistency is in the cards for Walmart. In part, this will depend on whether the company is done with its heavy cycle of investment. On Walmart's latest earnings call, an analyst asked if the company's leadership succession — Chief Executive Doug McMillon will be stepping down next month — signals another phase of spending. So far, incoming CEO John Furner, the head of Walmart U.S., has said the company will take a "disciplined" approach. But expanding an already big business could involve even more spending, and it will be difficult for Walmart to avoid hefty spending on artificial intelligence if that's what it takes to keep up with Amazon.

At these high multiples, the market is counting on Walmart to deliver tech-like growth or Costco-like consistency, two things that the company doesn't have a long track record of. Walmart still has a lot to prove.

Write to Jinjoo Lee at jinjoo.lee@wsj.com

By Anita Hamilton

Businesses big and small aren't taking any chances that they'll miss out on tariff refunds if the Supreme Court rules in favor of a group of small businesses challenging the levies.

With a decision expected as soon as this month in the case brought by wine importer V.O.S. Selections, dozens of other importers — from canned tuna giant Bumble Bee Foods to motorcycle maker Kawasaki — have all filed their own copycat suits in federal court in recent weeks as a key deadline approaches for claiming any adjustments on tariffs they have already paid.

"Given the sums involved, no one wants to miss a trick," Will Planert, a partner at Morris, Manning & Martin, who specializes in international trade, told Barron's. That sum could add up to more than $30 billion, or around one-fifth of the $158 billion that the Tax Foundation estimates that President Donald Trump's new levies will raise in 2025.

Here's why companies are rushing to file suit now and what's at stake.

Tariff Refunds Aren't Guaranteed

Retail giant Costco — which imports about one-third of the goods it sells in the U.S., including 8% from China — is just the latest and the highest profile company to file suit in late November. In seeking immediate relief from the U.S. Court of International Trade, it pointed out that there's no guarantee of a refund on tariffs already paid, even if the Court rules against the administration in the V.O.S. Selections case.

While odds on betting markets have increased that the Court will strike down the tariffs, automatic refunds are far from assured. Among the many possibilities, says Georgetown Law professor David Super, is that "the Court will declare that these aren't tariffs at all. In that case, entities seeking refunds could pursue relief in the same manner that anyone else whose money has been improperly seized may."

Even if the high court rules that the tariffs are improper, "having filed a timely challenge is crucial to preserving their rights to a refund," Super added. That's because refunds may not be fully retroactive unless a suit has already been filed, based on past rulings in other cases.

A Key Deadline for Tariff Refunds

The second reason why so many suits have been filed in recent weeks is tied to a Dec. 15 deadline related to Customs and Border Protection's process of finalizing the tariff bills paid by importers.

This process is called liquidation. Importers pay estimated tariffs when goods enter the U.S., and CBP eventually tallies things up and decides whether that estimate was correct. The CBP has 314 days to complete the process.

For the importers in the lawsuits, the first deadline is coming up on Dec. 15, which is 314 days after Feb. 4, when Trump imposed 10% in additional levies on Chinese imports in an executive order that was his first to use the International Emergency Economic Powers Act (IEEPA) as justification for tariffs. Those levies were aimed at curbing illegal fentanyl imports.

Importers seeking refunds on customs duties tied to those tariffs need to either request a correction or request an extension before the deadline. While they can file a protest to get refunds later on, not all liquidations can be protested. "It's a lot harder," said Scott Lincicome, vice president of general economics at the libertarian Cato Institute.

Costco said in its suit that CBP denied its request to extend the liquidation deadline for goods subject to IEEPA tariffs. Two other companies filing suit, Michigan-based auto parts store AGS and the Illinois candy company Imaginings 3, also said in their suits that CBP had denied their extension requests.

A preliminary court order could come within weeks. More than 40 of the lawsuits filed against the administration, including those by Costco and Revlon, were just consolidated into a single case this week. Now all those plaintiffs are requesting a preliminary injunction from the U.S. Court of International Trade that would suspend liquidation of import entries.

As Costco said in its original suit, the suspension is needed "to ensure that its right to a complete refund is not jeopardized." The government's response is due Dec. 11, and a hearing and ruling could follow quickly thereafter.

CBP didn't directly respond to Barron's request on whether it would suspend liquidation on IEEPA tariffs at least until the Supreme Court rules on the V.O.S. Selections case challenging the tariffs.

"The economic consequences of the failure to uphold President Trump's lawful tariffs are enormous and this suit highlights that fact. The White House looks forward to the Supreme Court's speedy and proper resolution of this matter," White House Spokesman Kush Desai said in a statement.

Why More Companies Aren't Filing Suit

As notable as the firms filing suit are those that haven't. For example, none of Costco's biggest rivals, such as Amazon, Target, or Walmart, have made similar legal claims. Also notably absent are big tech and pharmaceutical firms.

"Some of the companies that have not sued may believe that they have better prospects for relief through deal-making and fear that the administration may refuse to work with them, or may impose much harsher terms, if they are seen as defying the administration by challenging these charges," Georgetown's Super said.

"Many of the industries that do not seem to be suing are subject to more pervasive federal regulation in other ways and may be reluctant to anger the administration and risk a crackdown in those areas," he added.

In the case of tech and pharma companies, many of their products were exempted from the broad tariffs, although they may be impacted by separate, sectoral tariffs. Since those aren't being challenged, there's little point in filing suit.

The Administration's Plan B

If the Supreme Court does strike down the IEEPA tariffs, the administration already has a backup plan. Treasury Secretary Scott Bessent said Wednesday at the New York Times DealBook Summit that the government could "re-create the exact tariff structure" with other kinds of tariffs, including Section 232 sectoral tariffs, among others. Some of those are already in place, including on steel, aluminum, copper, and car imports.

However, sectoral tariffs typically take longer to enact, in part because they require monthslong government investigations that involve gathering public comments, as well as a detailed report submitted to the president before they can take effect.

What's more, the administration is likely to continue cutting deals that lower broad levies. Just this week, it agreed to exempt drugs imported from the United Kingdom from potential sectoral tariffs in return for the U.K. paying 25% more for new medicines.

Write to Anita Hamilton at anita.hamilton@barrons.com

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