Should You Buy Walmart’s Stock?

WMT: Walmart logo

[Updated: 12/31/21] WMT Stock Update

Walmart (NYSE: WMT) reported its Q3 report, wherein revenues and earnings both were slightly above Trefis estimates. The company surpassed market expectations on the top and bottom lines in its Q3 earnings with reported revenues of $140.5 billion, up 4.3% year-over-year (y-o-y), and operating income on a constant currency basis was up 6.3% y-o-y, leading to adjusted EPS of $1.45. Despite supply-chain woes, the world’s largest company by revenue posted 9.2% comparable-store sales growth in the U.S., up 15.6% on a two-year basis. That said, sales at Sam’s Club were even stronger with comps jumping 25% on a two-year basis. In addition, the company’s U.S. e-commerce sales rose 8% in the quarter and were 87% higher than the same quarter two years ago. However, consolidated operating expenses as a percentage of sales fell 4 basis points as strong sales growth, and lower expenses for Covid-19, were offset by investments in wages.

But if we were to consider the first nine-month financials of fiscal 2022, the retail giant’s revenue rose 3% to $416 billion compared with the same period in fiscal 2021. However, net income fell 35% y-o-y to just over $10 billion during that period. A loss on the sale of Walmart Argentina weighed on earnings. Overall, the results reflect a slowdown from fiscal 2021, when revenue grew by 7% and net income, led by surging costs and rising income taxes, fell by 10%. That said, Walmart still looks well-positioned for the holidays with current inventory up over 11%.

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For the full year FY 2022, Walmart forecast a 6% gain in comparable sales and also raised its adjusted earnings guidance. It now forecasts EPS of $6.40, up from prior guidance of $6.20 to $6.35. We have updated our model following the Q3 release. We now forecast Walmart Revenues to be $572.6 billion for the full year 2022, up 2% y-o-y. Looking at the bottom line, we now forecast EPS to come in at $6.45. Given the changes to our revenues and earnings forecast, we have revised our Walmart Valuation at $147 per share, based on $6.45 expected EPS and a 22.8x P/E multiple for fiscal 2022 – almost 3% higher than the current market price. We believe that the company’s stock is appropriately priced at the current levels.

Walmart’s stock price is slightly down year to date. Investors seemed to be concerned about people turning away from Walmart once the pandemic fear abates. Customers have dramatically shifted their spending habits during the pandemic, and there is no telling if those habits will continue in the post-pandemic world.

Below you’ll find our previous coverage of Walmart stock where you can track our view over time.

[Updated: 11/12/21] WMT Q3 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 third-quarter results on Tuesday, November 16. We expect WMT stock to trade higher on a likely earnings beat, 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 the fiscal first half – all this while leveraging its vast network of brick-and-mortar stores. While the sales gain slowed as comparable-store sales growth hit 5% in Q2 compared to 6% in Q1 and a 9% increase in the prior fiscal year, the comps were still higher than the 3% growth the company enjoyed two years ago in the Q2 pre-pandemic quarter. Going forward, Walmart expects Q3 U.S. comparable sales to range between 6% to 7%, excluding fuel. It also expects earnings per share (EPS) 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. Our forecast indicates that Walmart’s valuation is $160 per share, which is 8% higher than the current market price. Look at our interactive dashboard analysis on WMT’s pre-earnings: What To Expect in Q3? for more details.

(1) Revenues expected to be in line with consensus estimates

Trefis estimates Walmart’s Q3 2022 revenues to be around $136 Bil, almost in line with the consensus estimate of $135.5 Bil. 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%). 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.

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 slightly ahead of consensus estimates

WMT’s Q3 2022 earnings per share (EPS) is expected to be $1.42 per Trefis analysis, marginally above the consensus estimate of $1.40. The retailer’s EPS declined 32% y-o-y to $2.48 in the fiscal first half. 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 the upcoming Q3, as well.

We now forecast Walmart’s revenues to be $566 billion for fiscal 2022 (year ending Jan 2022), slightly up y-o-y. Looking at the bottom line, we now forecast EPS to come in at $6.31.

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

Going by our Walmart Valuation, with an EPS estimate of around $6.31 and P/E multiple of 25.3x in fiscal 2022, this translates into a price of $160, which is 8% 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.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Dec 2021
MTD [1]
YTD [1]
Total [2]
 WMT Return 0% -1% 106%
 S&P 500 Return 3% 27% 114%
 Trefis MS Portfolio Return 2% 47% 296%

[1] Month-to-date and year-to-date as of 12/30/2021
[2] Cumulative total returns since 2017

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