Walmart Earnings Loom: Are WMT Shares Attractive?

Earnings season continues its rapid pace this week, with this week’s docket primarily dominated by retailers. We’ve already heard from most S&P 500 companies, with results overall positive amid lingering uncertainty concerning upcoming periods.

Walmart WMT, likely the most recognized retailer of the bunch, is among those on the schedule this week, with its results expected on Thursday before the open. Shares have been red-hot over the past year, gaining more than 60% and even outperforming each Mag 7 member outside of Tesla.

Let’s take a closer look at what to expect from the titan retailer.

Guidance to be Key for Walmart

Analysts have taken their EPS expectations lower for WMT’s upcoming release, with the current $0.57 Zacks Consensus EPS estimate down roughly 12% since mid-February. Earnings are expected to decline 5% year-over-year, whereas forecasted sales of $165.6 billion suggest 2.5% growth from the year-ago period.

It’s worth noting that sales expectations have remained stable, with the downward EPS revisions reflecting a profitability crunch.

It’ll be interesting to see how the revisions picture evolves here post-earnings, particularly following recent tariff talks. As shown below, the company’s margins picture has largely recovered over recent periods, but the evolving economic landscape could negatively impact the progress.

Please note that the chart below is on a trailing twelve-month basis.

In addition, the company’s digital results will be a key focus among investors, which have shown great growth over recent periods, initially getting a massive boost from Covid-induced lockdowns. WMT’s digital presence certainly can’t be overlooked, even rivaling those like Amazon. Throughout its latest period, Global eCommerce sales grew 16% year-over-year, which was driven by store-fulfilled pickup & delivery and its US marketplace.

Of course, same-store sales will also be a key item to watch in the release, giving us a gauge on whether its existing locations have been seeing growth. Same-store sales (on an ex-fuel basis) are expected to be up 4% year-over-year, which compares to 4.9% in the period prior and 5.5% in the period before that.

WMT shares are heading into the release expensive relative to historical levels, with the current 36.2X forward 12-month earnings multiple well above the 23.9X five-year median and reflecting a 75% premium relative to the S&P 500.

But while the earnings multiple is elevated, it’s worth noting that its digital and operational successes over recent years have provided outsized growth for the retailer, with the steeper multiple a reflection of investors expecting the growth trends to continue.

Putting Everything Together: Walmart EPS Expectations Fall

Analysts have taken their EPS expectations lower for Walmart’s WMT upcoming release, likely a reflection of a profitability crunch.

The retail titan’s report is highly important, giving us a read-through on the current state of consumers while also providing some context for upcoming retailers expected to report, such as Target.

Keep in mind that one of Walmart’s greatest strengths is the ability to weather consumer downturns, with higher-income households gravitating towards its stores during times of crunched affordability, providing a small buffer.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research