Walmart Stock To Trade Higher On Likely Strong Fiscal Q3 Results?

WMT: Walmart logo

Walmart (NYSE: WMT) is scheduled to report its fiscal third-quarter results on Tuesday, November 17. We expect WMT to likely beat the revenue and earnings expectations, driven by growth across operating segments. The big-box retailer has benefited from the shift to e-commerce due to its longtime omnichannel approach – as its digital sales grew a robust 97% in Q2 (ended July). The retailer has invested heavily in same-day fulfillment service, including curbside pickup, all this while leveraging its brick-and-mortar stores. We expect the company to ride on this growth momentum in Q3 as well. It should be noted that the company is currently in fiscal 2021 (year ending January 2021).

Our forecast indicates that Walmart’s valuation is $149 a share, which is marginally lower than the current market price of over $150. Look at our interactive dashboard analysis on WMT’s Pre-Earnings: What To Expect in Q3? for more details.

(1) Revenues expected to be ahead of consensus estimates

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Trefis estimates Walmart’s Q3 2021 revenues to be around $135 Bil, 2% ahead of the consensus estimate of $132 Bil. The Covid-19 crisis boosted sales of essential products at both Walmart’s online and brick-and-mortar stores. Consequently, the retailer’s revenue grew 7% year-over-year (y-o-y) to $272 billion in the first two quarters of the year. Its U.S. comparable sales surged 10% y-o-y, driven by food, consumables, health & wellness, and some general merchandise categories during this period (compared to a 3% growth for the same period last year).

2) EPS also likely to be ahead of consensus estimates

WMT’s Q3 2021 earnings per share (EPS) expected to be $1.30 per Trefis analysis, almost 10% above the consensus estimate of $1.18. While the retailer saw incremental Covid expenses so far this year due to special bonuses to hourly employees, higher wages in fulfillment centers, and an exponential increase in digital sales during the quarter, its stronger revenue growth helped to offset those expenses.

For the full-year, we expect Walmart’s net margin to grow slightly from 2.8% in fiscal 2020 to 2.9% in fiscal 2021. This coupled with a 5% y-o-y growth in revenues, could lead to a rise of $1 billion y-o-y in net income to $15.9 billion in 2021. All this, resulting in a possible EPS increase from $5.22 in FY 2020 to around $5.52 in FY 2021.

(3) Stock price estimate slightly lower than the current market price

Going by our Walmart’s Valuation, with an EPS estimate of around $5.52 and P/E multiple of 27x in fiscal 2021, this translates into a price of $149, which is marginally behind the current market price of over $150.

Walmart’s e-commerce sales soared during the pandemic, surging 74% in Q1 and 97% in Q2 – making way for an attractive time to launch an e-commerce-focused subscription service. The retailer launched a new loyalty program Walmart+ at $98/year (lower than the $119/year subscription of Amazon Prime) in mid-September. This service expands upon its existing same-day grocery delivery service, Delivery Unlimited – with discounts on fuel, early access to product deals, and other perks such as reserved delivery slots. By leveraging the company’s advantages in grocery and its store base, the new service can likely boost sales further, lock in a loyal customer base, and reward customers. That said, the company’s business model works in both good and bad economic times – using its massive economy of scale to pass cost savings on to customers.

Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year

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