Wells Fargo's $110 Target: A Tactical Bet on Walmart's Tariff Defense

The specific catalyst is a tactical call. Wells Fargo analyst Edward Kelly has raised his price target for Walmart from $108 to $110, while maintaining an Overweight rating. This new target implies roughly 8% upside from recent trading levels, positioning the stock for a potential move around the next earnings report.

The timing is key. This upgrade arrives just before Walmart's Q1 earnings, adding event risk to the stock's trajectory. Kelly frames this as a bet on near-term resilience, not a fundamental re-rating. His rationale centers on Walmart's defensive positioning against tariff disruption, citing its balance sheet strength, sourcing flexibility, and pricing strategy as advantages over competitors. The call is a tactical play on the stock's setup ahead of the quarterly print, not a wholesale reassessment of its long-term value.

The Mechanics: How Walmart Navigates Tariff Headwinds

Wells Fargo's bullish call hinges on a clear operational playbook. The analyst frames Walmart's strategy as a dual-pronged "offense and defense" model, built on specific levers that management has already begun deploying. The core thesis is that Walmart's scale and structure allow it to absorb or pass on tariff costs in a way most retailers cannot.

The defensive pillar is its massive domestic supply chain. More than two-thirds of what Walmart sells in the U.S. is made, grown, or assembled domestically. This reduces its direct exposure to import tariffs. When tariffs do hit, the company's balance sheet provides the offensive firepower. It can secure sourcing capacity outside China, a move that may come at a higher cost but ensures inventory flow while competitors struggle to find alternatives. As CFO John David Rainey noted, this creates a competitive advantage: "We see opportunities to accelerate share gains and are maintaining flexibility to invest in price as tariffs are applied to incoming goods."

This leads to the critical margin protection mechanism. Walmart is committed to keeping prices low, even if costs spike. Its portfolio approach to pricing means it can raise less on tariff-affected items than competitors, protecting its value proposition. This strategy is underpinned by its pricing power and scale, allowing it to maintain a broad offering that capitalizes on consumer substitution. The result is a delicate balancing act: absorbing some cost pressure to keep prices low, while using its sourcing flexibility and scale to mitigate the worst of it.

Management's confidence in this model is signaled by its reiterated full-year guidance. Despite volatile Q1 sales and a macro backdrop of waning consumer confidence, Walmart has held firm. It expects net sales to grow 3% to 4% and operating income to grow 3.5% to 5.5% for the full year. This guidance, delivered at its investor meeting, is notable because it was maintained even as the company acknowledged the quarter's challenges. It suggests leadership believes the operational levers are sufficient to navigate the tariff uncertainty without sacrificing growth or profitability targets. The setup is now a test of execution ahead of the next earnings report.

The Setup: How Walmart Navigates Tariff Headwinds

The risk/reward here is defined by a clear event and a skeptical market. Walmart's stock trades at a premium to its 5.8% year-to-date gain, which lags the broader market. This underperformance signals that investors are pricing in macro uncertainty and tariff headwinds, creating a potential mispricing if the company's defensive playbook holds.

The immediate catalyst is the upcoming Q1 earnings report. Analyst Edward Kelly's call hinges on the company delivering a "solid print" against a "choppy backdrop." The key number to watch is earnings per share. The firm's reiterated guidance midpoint of $2.55 EPS is the benchmark. Any deviation below that midpoint would likely confirm that tariff costs or consumer weakness are hitting margins harder than expected, breaking the thesis. Conversely, a beat would validate management's confidence and Wells Fargo's tactical bet.

The setup is supported by resilient operational data. Despite a major e-commerce push, Walmart has maintained stable in-store traffic, with same-store visits holding steady through the summer. This resilient traffic validates its omnichannel strategy and suggests underlying consumer demand for essentials remains firm. That strength provides a buffer for its pricing strategy.

Yet the risks are tangible. A sharper-than-expected consumer pullback could test Walmart's commitment to keeping prices low. More aggressively, a significant escalation in tariff rates could overwhelm its sourcing flexibility and margin protection. The company's guidance assumes the current environment, but it is not immune. The bottom line is that this is a binary event. The stock's near-term path will be dictated by whether Q1 results confirm the defensive thesis or expose its vulnerabilities.