Marvin Samuel Tolentino Pineda
Walmart (New York:WMT) is heading into its earnings report on August 15 with high expectations after a 29% year-to-date surge. Consensus estimates from analysts are calling for Walmart (WMT) to report revenue of $167.3 billion, earnings per share of $0.65, and comparable sales growth in the U.S. 3.3%. The general opinion is that Walmart (WMT) will continue to benefit as a defensive stock pick if global markets continue to be volatile, but the retail sector as a whole will be watching to hear the Bentonville retail giant’s pulse on the U.S. consumer.
Morgan Stanley is forecasting another big quarter for Walmart (WMT) as it flexes its market share lead amid weaker consumers. Analyst Simon Guttman believes that if Walmart (WMT) matches comparable sales estimates, it will be a fair bet for the stock, especially as the rest of retail slows. “Given the sluggish retail data in July, the high risk of a consumer slowdown and the upcoming election in the second half of 2024, we think holding guidance should be acceptable given these uncertainties,” he explained.
Oppenheimer analyst Rupesh Parikh was a bit more cautious on the Walmart (WMT) print. Parikh and his firm have a more dovish view on the setup following the recent big outperformance and given the potentially aggressive Q3 earnings outlook. “At this point, amid the current muted inflation backdrop, we believe management can raise FY24 (January 2025) EPS guidance, but maintain full-year revenue growth at constant currency (cc) at the high end or slightly above the 3-4% range,” Parikh noted. Oppenheimer’s view is that investors should be positioned to take advantage of any profit-taking if it materializes, rather than playing for a positive catalyst in the upcoming print. Walmart (WMT) remains Oppenheimer’s top pick.
Analyst Uttam Dee at Seeking Alpha believes that an increased mix of higher-margin digital advertising revenue and membership growth should boost Walmart’s (WMT) margin profile. Dee believes that Walmart (WMT) can deliver a 9.6% CAGR in operating income, with margins expanding by about 20 basis points annually on average. However, with expectations clearly elevated and the market containing Walmart (WMT) guidance that could beat and raise expectations, Dee believes that the stock could remain rangebound for a few months if Walmart (WMT) guidance is conservative.
During the earnings conference call, investors will expect to hear Walmart (WMT) discuss margin headwinds for the rest of the year, and details on its U.S. sales mix from general merchandise to grocery and health and wellness. Investors will also be listening to see if Walmart (WM) can match its strong global advertising business growth of more than 30% in the first quarter.
The options trade involves a 5% price spike after Walmart (WMT) releases its second-quarter earnings report. Notably, the stock surged 7% after the first-quarter report was dropped. Retailers with the highest trade correlation to Walmart (WMT) following its earnings report include BJ’s Wholesale Club (BJ), Costco (COST), Ollie’s Bargain Outlet Holdings (OLLI), and Best Buy (BBY). Analysts also circled grocery store stocks Albertsons Companies (ACI), Kroger (K), and Sprouts Farmers Market (SFM) as three names that could react to Walmart’s (WMT) print. ETFs with the highest exposure to Walmart (WMT) include the Consumer Staples Select Sector SPDR Fund ETF (XLP), the Vanguard Consumer Staples Index Fund ETF (VDC), the VanEck Retail ETF (RTH), and the iShares US Consumer Focused ETF (IEDI).
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