Does Walmart Stock Have More Upside?

[Updated: 09/06/21] Walmart Stock Update

Walmart (NYSE: WMT) recently reported its Q2 report, wherein revenues came in line but GAAP earnings per share were below our estimates. The company reported revenues of $141 billion, 4% above the consensus estimate of $135.9 billion, and its earnings per share came in at $1.52, falling 4% behind our $1.58 estimates. The company’s revenues grew 2% year-over-year (y-o-y), on the back of U.S. comparable sales rising 5.2% during the quarter (which also smashed the comps consensus estimate of 3.1%). It should be noted that this 5% comps growth in Q2 decelerated from 6% in Q1 and 9% in the prior fiscal year, but was still higher than the 3% growth the company enjoyed two years ago in the pre-pandemic quarter. In fact, Walmart is seeing no sign of a demand slowdown as consumers are still eagerly spending in attractive categories like home furnishings – despite the pullback in some stimulus measures. We expect this trend to continue into Q3 as well.

Walmart expects Q3 U.S. comparable sales to range between 6% to 7%, excluding fuel. It also expects earnings per share in between $1.30 to $1.40 as compared to a consensus of $1.31. For the full year, Walmart now sees comps rising between 5% and 6% in the U.S., with operating income increasing between 9% and 11.5%. The multiline retailer is now expecting slightly positive sales growth this year, even after soaring 8% last year. We have updated our model following the fiscal Q2 release. We now forecast sales to be $567 billion for fiscal 2022 (year ending Jan 2022), slightly up y-o-y, compared to a marginal decline in our previous estimate. Looking at the bottom line, we now forecast EPS to come in at $6.31, compared to our earlier estimate of $5.98. Given the changes to our revenues and earnings forecast, we have revised our Walmart Valuation at $160 per share, based on $6.31 expected EPS and a 25.3x P/E multiple for fiscal 2022 – 8% higher than the current market price.

[Updated: 08/13/21] Walmart Q2 Pre-Earnings

Walmart (NYSE: WMT), the world’s largest retailer, operating discount stores, supercenters, neighborhood markets, and Sam’s Club warehouses, is scheduled to report its fiscal second-quarter results on Tuesday, August 17. We expect WMT to likely beat the revenue and earnings expectations, driven by growth across all reporting segments – Walmart U.S, Walmart International, and Sam’s Club. The big-box retailer has benefited from its low prices and improving digital presence in Q1 – all this while leveraging its vast network of brick-and-mortar stores. While the sales gain slowed as comparable-store sales growth hit 6% compared to the 9% increase Walmart enjoyed through 2020, still, the comps grew 16% on a two-year basis. Going forward, we expect the company to continue to modestly outperform the market in the upcoming Q2 release, as well. Walmart raised its outlook for the second quarter on both sales and operating income marginally as it expects continued pent-up demand benefits. Our forecast indicates that Walmart’s valuation is $153 per share, which is 7% higher than the current market price of around $143. Look at our interactive dashboard analysis on WMT’s pre-earnings: What To Expect in Q2? for more details.

(1) Revenues expected to be ahead of consensus estimates

Trefis estimates Walmart’s Q2 2022 revenues to be around $140.2 Bil, 3% ahead of the consensus estimate of $135.9 Bil. Walmart’s fiscal first-quarter revenue grew by 2.7% year-over-year (y-o-y) to $138.3 billion, driven by federal stimulus measures and pent-up demand across both discretionary and consumer staples niches. While customer traffic at stores dropped 3% in Q1, it was a big improvement over a 10% fall in Q4. To add to this, the decreased footfall was easily offset by higher spending per visit, along with booming demand in the online niche. The company’s digital business is still expanding quickly, suggesting that the pandemic boost may be longer-lasting. In Q1, the retailer’s global e-commerce sales surged 43% globally and now represent 12% of its retail business. However, it should be noted that Walmart also recorded the slowest e-commerce growth rate in Q1 since the start of the global health crisis. This points toward some challenges it will face as tailwinds from the pandemic likely fade in a year. But for now, we expect the company to continue to ride on its growth momentum in Q2.

For the full year, the big-box retailer plans to spend $14 billion to build a stronger infrastructure in order to support its elevated sales volumes, particularly in the online business. These also include spending on its supply chain, automation, and wages.

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2) EPS likely to be ahead of consensus estimates

WMT’s Q2 2022 earnings per share is expected to be $1.58 per Trefis analysis, 3% above the consensus estimate of $1.54. The retailer’s EPS declined 30% y-o-y to 97 cents in fiscal Q1. It is worth mentioning that online services that have gained steam, such as curbside pickup, require additional labor – translating to higher labor costs. And, Walmart has not been passing these costs on to its customers, even as more take advantage of the convenience of shopping online. So, these costs are expected to pressure the company’s bottom line in Q2, as well.

For the full year, we expect Walmart’s net margin to grow slightly from 2.4% in fiscal 2021 to 3.0% in fiscal 2022. This coupled with a marginal decline in Walmart’s revenues, could lead to a rise of $3 billion y-o-y in net income to $16.6 billion in 2022. All this, resulting in a possible EPS increase from $4.75 in FY 2021 to around $5.98 in FY 2022.

(3) Stock price estimate higher than the current market price

Going by our Walmart’s valuation, with an EPS estimate of around $5.98 and P/E multiple of 25.6x in fiscal 2022, this translates into a price of $153, which is 7% higher than the current market price.

For further comparison among peer groups, it is helpful to see how they stack up. Walmart Stock Comparison With Peers shows how WMT compares against peers on metrics that matter.

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