Earnings Beat In The Cards For Walmart’s Stock?

by Trefis Team
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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.

2) EPS likely to be ahead of consensus estimates

WMT’s Q2 2022 earnings per share (EPS) 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.

See all Trefis Price Estimates and Download Trefis Data here

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