Amazon and Walmart are fighting in a $4 trillion market: Morgan Stanley

“Walmart dominates the low-income customer, who represents around 30% of total addressable spend, whereas Amazon dominates at the high end, which represent 50% of the spend,” said the group led by Simeon Gutman in a note sent out to clients on Monday.

“Thus, Walmart’s opportunity for upscaling could be much greater than Amazon’s opportunity for downscaling.”

Facing an uphill battle in reshaping its customer base, Walmart would likely have to invest more heavily in fulfillment, push hard on grocery, and buy more brands, Gutman said. These steps would also help it get rid of its negative brand image of being a low-income-focused retailer.

But the investment cycle in fulfillment, software upgrades and Click & Collect expansion will be longer than Walmart initially believed. Also, grocery competition with Amazon and Whole Foods’ Prime Now offering will lead to a price and convenience war that may weigh on margins, he added.

Earlier this month, Walmart reported earnings per share of $1.29 on $128 billion in revenue, topping analysts’ estimates for $1.22 and $126 billion respectively due to its rising same-store sales and digital orders.

Morgan Stanley has a price target of $98, which is 3% above its current trading price, and maintains an “Equal-weight” rating for Walmart.

Shares of Walmart are down 3.7% since the start of this year.