Marvin Samuel Tolentino Pineda
Walmart (New York Stock Exchange:WMT) heads into its earnings report on August 15 with high expectations following a 29% rally so far this year. Analyst consensus estimates are for Walmart (WMT) to report revenue of $167.3 billion, EPS of $0.65, and U.S. comparable sales growth. of 3.3%. The general opinion is that Walmart (WMT) will continue to benefit as a defensive stock option if jitters in global markets continue, but the retail sector as a whole is watching to hear the pulse of the Bentonville retail giant with the American consumer.
Morgan Stanley expects another mega quarter for Walmart (WMT) as it shows market share leadership amid weaker consumer spending. Analyst Simeon Gutman believes that if Walmart (WMT) matches comparable sales estimates, it will be acceptable for the stock, especially as the rest of retail has slowed. “Given the slow July retail data, the risks of a rising consumer slowdown, and the upcoming election in the second half of 2024, we believe that maintaining guidance should be acceptable with these uncertainties,” he noted.
Oppenheimer analyst Rupesh Parikh is a bit more cautious on the Walmart (WMT) data. Parikh and his team have a more dovish view on the setup following the recent significant outperformance and given Wall Street’s potentially aggressive Q3 revenue forecasts. “At this point in time, amid the current subdued inflation backdrop, we believe management could raise FY24 (January 2025) EPS guidance but keep full-year implied constant currency (cc) revenue growth 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 play a positive catalyst in the upcoming data. Walmart (WMT) remains a top pick for Oppenheimer.
On Seeking Alpha, analyst Uttam Dey believes that a higher mix of higher-margin digital advertising revenue and stronger subscription growth should boost Walmart’s (WMT) margin profile. Dey believes that Walmart (WMT) can deliver a 9.6% compound annual growth rate in operating income growth, with margins expanding by about 20 basis points per year on average. However, with expectations clearly high and the market potentially pricing in a Walmart (WMT) forecast that beats or rises, Dey believes that the stock is likely to remain range-bound for a few months if Walmart (WMT)’s (WMT) forecast is conservative.
During the earnings call, investors should expect to hear Walmart (WMT) discuss margin headwinds for the remainder of the year and details of its U.S. sales mix, from general merchandise to grocery to health and wellness. Investors will also be watching to see if Walmart (WM) was able to match its global advertising business' strong growth of more than 30% in the first quarter.
Options trading implies a 5% price rally for the stock after Walmart (WMT) releases its second-quarter earnings report. Notably, the stock saw a 7% rally after its first-quarter report was released. The retailers with the highest trading correlation with Walmart (WMT) following its earnings report are BJ's Wholesale Club (BJ), Costco (COST), Ollie's Bargain Outlet Holdings (OLLI), and Best Buy (BBY). Analysts also have supermarket stocks Albertsons Companies (ACI), Kroger (K), and Sprouts Farmers Market (SFM) flagged as three names that could react to Walmart's (WMT) release. The ETFs with the highest degree of 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).
