Why This Analyst Expects a Little Extra From Walmart Earnings

Walmart Inc. (NYSE: WMT), along with a handful of other major retailers, is due to release its most recent quarterly results later this week and analysts are getting the jump on it. This mega-store has been a staple for many portfolios over the past year, as it has provided excellent insulation from the pandemic.

Jefferies takes a closer look at the stock in its most recent report by analyst Stephanie Wissink. A Buy rating was reiterated, accompanied by a $184 price target, which implies upside of 23% from the most recent closing price of $149.53. Overall, the firm expects Walmart to report a slight second-quarter beat, but it is biased to additional upside. Wissink went further into detail:

Inbound interest has increased as of late, which we attribute to investor focus on expected benefits of the broader WMT model – resiliency through inflation/economic cycles, a pandemic beneficiary, transforming omni-channel ecosystem, and recent data points supporting a grocery share recovery.

From a broad perspective, analysts in general have consensus estimates calling for $1.56 in earnings per share (EPS) on $136.74 billion in revenue. However, Jefferies has a slightly more positive take, with adjusted-EBIT coming in at $6.54 billion, versus a $6.42 billion consensus, and $1.58 in EPS. Also, Jefferies is modeling 3.7% in comparable sales, versus the 3.5% consensus.

As for inflation concerns, Jefferies expects this to hit a little but it is likely to be mitigated. At a recent conference with management, the Walmart team acknowledged inflation across a variety of inputs, but it plans to negotiate with suppliers, along with other cost savings and productivity improvements, to keep prices low.

Jefferies also was quick to note that, historically, Walmart has been able to mitigate inflation’s impact on its gross margins through cost reductions and merchandising actions.

Retailers typically require at least a 90-day notice for these measures to take place, implying price increases hitting in October or November. However, Jefferies expects inflation also to benefit comparable sales in this time, especially considering consumers are benefitting from stimulus and could potentially be less price sensitive.

Look out for the earnings report Tuesday before the markets open.

Walmart stock was last seen trading near $149 on Monday, in a 52-week range of $126.28 to $153.66. Analysts have a consensus price target of $163.67 for the stock.

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