Wal-Mart's Food Fight

Wal-Mart's Food Fight
Melanie Lindner, 03.15.10, 11:55 AM EDT
Citi analyst upgrades retailer as price war with grocery chains looms.


Shares of Wal-Mart Stores got a boost Monday from Citi analyst Deborah Weinswig, who upgraded the stock on its recent grocery price cuts and management changes in its apparel division.

Weinswig lifted her rating on shares of the Bentonville, Ark.-based company to buy from hold, and raised her price target to $65, up from $54. According to the analyst, "Wal-Mart ( WMT - news - people ) is lacing up the gloves as it prepares to step back into the ring and win the modern-day price war in food retail." She estimates that the company currently controls 20.5% of the market, and could increase its share to 21.6% in this calendar year. For the long-term, Weinswig predicts that the company could take up to one-third of the domestic food retail market.

Wal-Mart picked up new cost-conscious customers through the Great Recession as they downgraded from traditional supermarkets, but as purse strings loosen from crisis levels those shoppers are showing signs of returning to chains like Kroger ( KR - news - people ) and Supervalu ( SVU - news - people )'s Shaw's and Shop 'n Save for a better customer experience.

According to Weinswig, Wal-Mart is working to improve its customer experience by widening grocery aisles through its "Clean Action Alley" initiative and aggressively reducing prices to remind customers it gained in the recession why they chose its stores.

In yet another effort to bolster sales, Wal-Mart has brought in eight new executives to its apparel team, which moved to New York City in late 2007 to be closer to emerging fashion trends. Weinswig says "lack of an aligned management team in apparel has resulted in significant disruption in Wal-Mart's apparent business over the past three years." However, she notes that the newly aligned management team and improvements in global sourcing could yield top-line growth as soon as the second half of 2010.

On news of the upgrade from Citi, shares of Wal-Mart gained $1.37, or 2.5%, to $55.27 in Monday morning trading.