Walmart’s Positive Earnings Outlook

by Warren Seah

Investors Anticipate Positive News Following Home Depot and Target Earnings

As investors eagerly await Walmart’s upcoming earnings report, they have an additional reason to be hopeful. Recently, both Home Depot and Target posted their earnings results, providing valuable insights into the retail industry’s current state.

Despite weaker sales figures, Target’s stock saw a surge of double-digit percentage gains, creating an optimistic outlook for the sector. Home Depot also experienced a similar trend, with its stock rising by 6% since Monday.

These positive outcomes indicate that retailers possess strategic tools to navigate challenging landscapes successfully. Moreover, consumers are displaying resilience, further boosting investor sentiment. John Tomlinson, M Science’s Global Director of Research, affirms the optimistic outlook.

As Walmart prepares to reveal its fiscal third-quarter earnings on Thursday, analysts predict a 4.4% year-over-year revenue growth to $159.7 billion. Additionally, same-store sales—a crucial indicator of growth— are expected to increase by 3.7%.

Adjusted earnings are projected to reach $1.52 per share, slightly surpassing the $1.50 per share reported in the same period last year. With its current positioning, Walmart is well-equipped to meet or even exceed these expectations.

Evercore ISI analyst Greg Melich echoes this sentiment, considering Walmart as the standout in the industry despite a challenging consumer environment. He confidently anticipates a solid earnings beat from the retail giant.

However, it is important for investors to temper their expectations of a significant surge in Walmart’s stock, similar to what was seen with Target. This disparity arises from the fact that Target’s low initial expectations facilitated its impressive stock market performance. In contrast, Walmart does not face the same downward pressure heading into its report.

With these factors in mind, investors maintain an optimistic outlook for Walmart’s earnings report, expecting positive results and reinforcing the retail powerhouse’s position in the market.

Key Points:

  • Target and Home Depot’s recent earnings results indicate promising trends in the retail sector.
  • Walmart is expected to report a 4.4% year-over-year revenue growth and a 3.7% increase in same-store sales.
  • Analysts project adjusted earnings of $1.52 per share for Walmart’s fiscal third-quarter.
  • Evercore ISI analyst Greg Melich predicts a strong performance from Walmart, but cautions against expecting a significant stock surge.

Walmart’s Stock Performance

Walmart has been consistently outperforming its competitors, Target and Home Depot, in recent quarters. This success is reflected in the company’s stock price, which is trading at a premium valuation compared to its rivals. According to FactSet, Walmart’s stock trades at 24 times forward earnings, while Target’s shares trade at 13 times earnings and Home Depot at 19.6.

This premium valuation is seen as justified by Oppenheimer analyst Rupesh Parikh. In a note to clients, Parikh highlighted that Walmart is likely to continue gaining market share. However, he also cautioned that the high expectations placed on the company leave little room for error when it comes to reporting earnings.

To illustrate the potential impact of high expectations, we can look at the recent earnings report of TJX Companies (TJX). Unlike Target and Home Depot, TJX experienced strong increases in foot traffic and sales. This can be attributed to consumers becoming more price-sensitive and actively seeking value. Notably, TJX exceeded earnings estimates.

However, despite the positive results, TJX’s stock traded lower because the company’s fourth-quarter guidance fell short of the market’s high expectations.

Similarly, Walmart faces a similar challenge as high expectations are set due to the macroeconomic environment and changes in consumer behavior.

According to David Tomlinson, an industry expert, unless Walmart delivers a considerably better-than-expected profitability line item in its earnings report, the market’s reaction is likely to be more subdued compared to Target.

In conclusion, Walmart’s stock performance has been impressive but faces the challenge of meeting or surpassing high expectations in its upcoming earnings report.

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