Earnings

Walmart share price outpacing Amazon ahead of Q2 update; can it continue?

While US giant Walmart’s [WMT] share price is up 16% since this time last year - outpacing Amazon's 6% decline over the same time frame - analysts suggest caution ahead of the company’s Q2 results on 15 August. 

Results for Q1 surpassed expectations, recording $1.13 adjusted earnings per share against $1.02 expected, although revenue was $123.9bn against the $124.9bn forecast.

The multinational conglomerate saw its best performance in nine years, growing 3.4%, which was in-line with analyst expectations.

Despite the general consensus that ecommerce is taking over from brick-and-mortar stores on a global scale, Walmart’s Q1 online sales in the US only accounted for 10.2% of the company’s total sales.

“Aside from a decline in February, retail sales have increased every month so far this year,” Wells Fargo noted however. “That’s consistent with the elevated confidence data and suggests consumers remain comfortable with their spending habits despite increased risks to the outlook.”

The company added: “As long as the labour market remains healthy, this positive consumer spending trend should continue.”

 

The race against Amazon

One of the company’s biggest competitors is tech giant Amazon [AMZN]. It’s helped push Walmart to invest more into its own delivery systems, improving its offering to reach the same efficiency standards as Amazon.  

In May, Walmart announced next-day delivery across three US states for more than 200,000 items, while it provides free two-day shipping on orders of $35 or more. The company is also on course to offer same-day grocery delivery from 1,600 US stores later this year.

1,600

Number of US stores set to offer same-day grocery delivery by end of the year

LendEdu, a consumer-focused research company, published a report in June comparing prices of the same products offered by Amazon, Target [TGT] and Walmart – with Walmart coming out the cheapest.

 

Expectations

For Q2, Walmart’s revenue is projected to rise by 1.9% to $130.4bn, according to Zacks, beating Q1’s 1% growth that was negatively impacted by currency fluctuations. 

However, comparable store sales are expected to come in a marginal 2.5% up, the slowest growth seen in each of the past five quarters. Fiscal 2020 revenue is projected to grow by 2.4% to reach $526.6bn, with full-year comparables due to rise 2.9%, potentially offsetting any Q2 disappointment.

 

Market cap $306.43bn
PE ratio (TTM) 37.56
EPS (TTM) 2.86
Operating Margin (TTM) 4.25%

Walmart share price vitals, Yahoo finance, 13 August 2019

 

Earnings for this quarter however are projected to fall by 6.2%, with fiscal 2020 predicted to see a dip of 1.4%. It’s not expected to be all doom and gloom though, as Zacks sees Walmart’s EPS bouncing 4.6% above this year’s estimate in fiscal 2021, to hit 5.05. In the current quarter, EPS is estimated to come in at 1.22.

 

What to watch

Walmart closed last week at $107.28, down 0.6% from the start of that week on 5 August.

Michael Khouw, chief strategist at Optimize Advisors, told CNBC: “Walmart is not a name that we typically think of as being very volatile and the options market is implying a move of about 4% right now off earnings, that turns out to be actually slightly below the average over the course of the last eight quarters.”

“Walmart is not a name that we typically think of as being very volatile and the options market is implying a move of about 4% right now off earnings” - Michael Khouw, chief strategist at Optimize Advisors

This is due to two earnings results sparking a 10% rise, and a 10% fall, over the period.

“I also don’t see the stock falling much below the level from which it originally broke out, the mid-high nineties,” Khouw added.

Analysts' price targets come in between $95 and $130, with a median estimate of $115; the latter represens a 6.5% increase from the current share price.

According to Reuters, analysts’ consensus recommendation is ‘hold’, with 14 of the 34 tracked cautioning investors against buying or selling. That’s followed by ‘outperform’ and ‘buy’ with 10 and 9 respectively. ‘Sell’ gets 1, with none rating the stock ‘underperform’.

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