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Why Goldman Thinks Walmart Can Hold Its Own Against Amazon

Not all brick-and-mortar retailers are withering before’s (AMZN) growing dominance.

Walmart (WMT) on Friday won a big vote of confidence from Wall Street firm Goldman Sachs, which said the discount retailer was well equipped to hold its own in the e-commerce and grocery wars currently roiling the U.S. retail sector.

Saying that Walmart had the wherewithal to withstand Amazon’s ascent, Goldman upgraded Walmart shares to buy and added it to its conviction list. It also raised its 12-month price target to $84 (shares were trading at $76 late Friday morning after getting a bump from the Goldman upgrade.)

Walmart has poured billions into its e-commerce firepower. Over the past two years, the retailer has equipped 800 stores with same-day pickup service for online grocery orders, improved its shopping app, and given its workers raises. These initiatives weighed on profits and, for a time, dampened Walmart stock price as shareholders waited to see whether they’d pay off. So far, they seem to be: digital sales at Walmart rose 63% last quarter, and the company has enjoyed 11 straight quarters of comparable sales increases, making it one of retail’s better performers.

Walmart is “as well positioned as any retailer to simultaneously sidestep the AMZN (Amazon) juggernaut based on market/category exposure,” Goldman analyst Matthew Fassler said in his research note. The firm pointed to Walmart’s presence in smaller and rural markets, where grocery delivery services are harder to implement, which could shield it from some of the market pressures posed by Amazon. Goldman also touted Walmart’s improved inventory management and in-store operations.

The analysis wasn’t all rosy, however. Goldman warned that Walmart could increase its e-commerce investments, which would pinch profit per share. Meanwhile, discount supermarket Aldi’s expansion, along with the arrival of German discount grocer Lidl, could pressure Walmart to keep its prices low, something it has already been doing to protect its market share.

In the grocery wars, Walmart, America’s largest grocer, has a lot to lose: Fifty-five percent of its $300 billion in annual U.S. sales comes from food. “The wall of worry is high now,” Goldman said.