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Earnings

What’s in store for Walmart’s share price following Q2 earnings?

Walmart’s [WMT] share price has soared to new heights this year, but that’s not to say it hasn’t been a bumpy road.

On 12 March, its worst day of trading this year, Walmart’s share price dropped to $102.72, marking a 12.45% year-to-date fall. The downturn was brought about by the coronavirus pandemic, which also dragged the S&P 500, Dow Jones and Nasdaq down on the same day.

However, while the major indices continued to fall (reaching their lowest levels on 23 March), Walmart’s share price was quick to recover. The stock climbed 10.3% to close at $113.31 on 23 March.

 

 

Although the stock fell again the following week, Walmart’s share price reached a new peak on 16 April, closing at $131.21. Despite trending lower over May and June, the stock started to recover on 7 July before reaching a new all-time high of $132.12 on 22 July.

Since then, Walmart’s share price hasn’t closed below $128, and is up 13.02% YTD (through 14 August’s close).

So, is Walmart’s share price in need of a reality check, or will the stock be able to maintain its upward trajectory following its second-quarter earnings call on 18 August?

 

Walmart’s e-commerce business sees strong demand

When Walmart announced first-quarter earnings for the fiscal year 2021 on 19 May, it topped earnings estimates of $1.12 when it hit $1.18, representing a year-on-year growth of 5.2%.  

Although the retailer set a new record in online sales as millions of customers stocked up on food and cleaning products, Walmart’s share price fell 2.12% following its first-quarter earnings call.

For the quarter, Walmart posted revenue of $134.6bn, an 8.6% year-over-year increase that beat the Zacks consensus estimate of $134bn.

In a statement released alongside the results, Walmart said: “The company’s net sales and operating results were significantly affected by the outbreak of COVID-19. Unprecedented demand for products across multiple categories led to strong top-line results. Certain incremental costs negatively affected operating income, including costs associated with enhanced wages and benefits as well as safety and sanitation.”

“Unprecedented demand for products across multiple categories led to strong top-line results. Certain incremental costs negatively affected operating income, including costs associated with enhanced wages and benefits as well as safety and sanitation” - statement from Walmart

 

Looking ahead to its second-quarter results, Walmart is expected to report earnings of $1.09 per share, according to Zacks, which would represent a decline of 14.17% year-over-year. Given the unprecedented circumstances faced in 2020, this decline would not necessarily cause a significant drop in Walmart’s share price.

Meanwhile, the consensus estimate for revenue expects Walmart to post net sales of $133.97bn, which would mark an increase of 2.76% from the same period a year ago.

For the full year, the Zacks consensus estimate is projecting earnings of $4.93 per share, which would result in no change from last year. As for revenue, analysts expect Walmart to make $545.29bn for the full year, a growth of 4.07% from the fiscal year 2020.

$545.29bn

Walmart's expected full-year revenue - a 4.07% YoY rise

 

What’s the outlook for Walmart?

Writing for The Motley Fool, Leo Sun said: “Walmart's margins were weighed down by higher fulfilment expenses and sales of lower-margin products, but its ability to remain open and continue growing indicates it's a crisis-resistant stock.”

“Walmart's margins were weighed down by higher fulfilment expenses and sales of lower-margin products, but its ability to remain open and continue growing indicates it's a crisis-resistant stock” - Leo Sun

 

Although Zacks has given Walmart a Sell rating, the consensus among 34 analysts polled by CNN Money is to Buy. This comes from a majority of 20, with six analysts giving the share price an Outperform rating and another six rating the stock a Hold. One analyst rates Walmart as Underperform, while another suggests to Sell at the current share price.

Among 31 analysts offering 12-month forecasts for Walmart’s share price, CNN Money reports a median target of $140, with a high estimate of $160 and a low of $100. The median estimate represents a 5.2% increase on its 14 August closing price.

 

Market Cap$382.639bn
PE ratio (TTM)25.69
EPS (TTM)5.26
Quarterly Revenue Growth (YoY)8.6%

Walmart share price vitals, Yahoo Finance, 17 August 2020

Disclaimer Past performance is not a reliable indicator of future results.

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