Earnings

Will Walmart’s share price bag another earnings beat?

Will Walmart’s share price bag another earnings beat?

Walmart’s [WMT] share price has seen unprecedented growth in 2020, despite things looking uncertain over the spring. With third-quarter earnings due to be announced on 17 November, investors will be on the lookout for a strong set of results to sustain the drive back towards the early September peaks.

Whereas most stocks saw a short, sharp dip in March as the coronavirus pandemic bit, Walmart’s share price saw a succession of dramatic ups and downs from late February all the way through to early April. However, since then the trend for Walmart’s share price has mainly been one of steady improvement.

While it stagnated in June at the $118 mark — roughly where it began the year — Walmart’s share price jumped to $131.66 by 16 July, and has sustained impressive growth since late August.

 

 

Walmart’s share price reached an intraday high of $151.33 on 2 September and, although it fell 9.7% the following week to $136.70 on 11 September, Walmart’s share price has risen steadily since to close at an all-time high of $150.54 on 13 November.

As a result, Walmart’s share price has outperformed the Nasdaq, S&P 500 and Dow Jones indices over the last three months. While it’s down on the tech-heavy Nasdaq for the year to date, it has outperformed both the S&P 500 and Dow Jones, and is up 28.3% since January (through 13 November).

 

Retreats and robots

Walmart’s strong performance in the markets over the third quarter appears to have been driven in part by a retreat from its weakest assets. On 2 October, Walmart announced the sale of its majority stake in UK supermarket chain Asda for £6.8bn, just £0.1bn more than the amount for which they bought the chain back in 1999.

Then, on 6 November, Walmart announced the sale of its Argentine operations to local investor Grupo de Narvaez due to toughening business conditions in the country. Walmart’s shares gained 0.7% in response to the news.

Further evidence that Walmart is pulling out of its less profitable ventures came from its recent announcement that it will be abandoning its foray into using in-store robots to track inventory.

Instead, the retailer is pursuing other solutions including using existing workers in the aisles, reported the Wall Street Journal. This move doesn’t appear to have strongly affected Walmart’s share price, however, with the stock rising in line with the S&P 500 index on the day of the announcement, 2 November.

While this cull of unprofitable lines is good practice for future profitability, it is unlikely to have a direct impact on the top line of the upcoming quarter. Zacks forecasts third quarter sales of $132.76bn, an improvement of 3.7% on the same period last year. The figure would, however, represent a 3.6% drop from last quarter’s revenue of $137.7bn.

$132.76billion

Walmart's estimated Q3 sales - a 3.7% YoY rise

  

The high estimate of $135.43bn would be very respectable if realised, and it’s notable that Walmart’s strong second-quarter performance caught analysts heavily by surprise, so there is every chance that earnings could be in this region.

That said, the low estimate of $130.66bn suggests some analysts feel that Walmart will only make a small improvement on its figures from the year-ago quarter.

Earnings per share are, according to Zacks, likely to come in at $1.19 — a modest 2.6% increase year-over-year, implying that profitability hasn’t grown at the same pace as revenue over the last 12 months. Again, this would represent a drop-off from the surprisingly strong $1.56 per share posted last quarter.

 

Market Cap $431.977bn
PE ratio (TTM) 24.32
EPS (TTM)  6.27
Quarterly Revenue Growth (YoY) 5.6%

Walmart share price vitals, Yahoo Finance, 17 November 2020

 

A safe investment for cautious investors

Walmart’s share price is rated a Buy among 33 analysts polled by CNN Money and has a median price target of $150 — 1.62% lower than its closing price on 16 November. A low target of $104 (30.9% below the latest price) and a high of $175 (16.2% above) indicates that, while the stock could fluctuate either way, analysts believe that the scope for the price to fall outweighs its potential to rise.

The reason for this positivity, despite the limited growth potential, is Walmart’s reliability. As the world’s biggest retailer and with a steadily increasing dividend, it could be considered a safe investment for cautious investors who are not seeking a quick profit from volatile shares.

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