New Highs in Store for Walmart (NYSE:WMT) if Earnings Top Estimates

By
Richard Bowman
Published
August 15, 2021
NYSE:WMT
Source: Shutterstock

Tomorrow Walmart Inc. (NYSE:WMT) will be releasing financial results for its fiscal second quarter which ended in July. The stock price is still a few percent below its November high, and these earnings will probably determine whether it breaks out to new highs or consolidates for longer.

Walmart has historically been considered a slow and steady stock, but the share price has been outperforming the market since 2016 when the company’s e-commerce strategy began to pay off. The digital channel also helped Walmart keep its momentum going during the height of the pandemic last year. All of this propelled the stock to an all-time high of $153.66 in November. 

See our latest analysis for Walmart

What is Walmart worth?

In February, Walmart missed estimates for fourth quarter EPS  and the stock price fell sharply. It has now just about recovered those losses. However, if we look at current forecasts for growth over the next year, it appears top and bottom-line growth is expected to be below the market and the industry over the next year.

NYSE:WMT Earnings and Revenue Growth Forecasts August 16th 2021
NYSE:WMT Earnings and Revenue Growth Forecasts August 16th 2021

If we use current forecasts to estimate the value of Walmart, we come to a price of around $184. That implies that at the current price of $149 the stock is trading at a modest discount of 19%. The modest discount and single digit expected returns don’t give us a lot to get excited about. We also wrote about Walmart’s dividend recently, and pointed out that there are better options for income investors.

earnings-and-revenue-growth NYSE:WMT Earnings and Revenue Growth August 16th 2021
NYSE:WMT Earnings and Revenue Growth August 16th 2021

What are analysts expecting from Walmart’s earnings?

For the quarter to the end of July, analyst consensus is for EPS of $1.57, up 17% from the same quarter last year, and revenue of $136.7 billion, which would be marginally lower than a year ago. Those are the consensus numbers, but some analysts are expecting significantly more, and Walmart does often beat consensus by a wide margin. 

If Walmart outperforms, we may see forecasts being raised. Analysts will also be paying close attention to the company’s guidance for the next quarter and the full year. Upgrades would probably lead to the stock making a new high, which often attracts new buyers too.

If results and guidance are in-line or below expectations, the stock may resume its ‘market perform’ status. That said, Walmart’s earnings are reliable, which makes it a popular defensive pick for portfolios, particularly when there is weakness in the broader market.

What this means for you:

Are you a shareholder? It seems like the market has already priced in most of WMTs expected growth, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you've been keeping an eye on WMT, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So, if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 3 warning signs for Walmart and we think they deserve your attention.

If you are no longer interested in Walmart, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Simply Wall St analyst Richard Bowman and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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