Can Walmart Stock See Higher Levels Post Fiscal Q1?

Walmart (NYSE: WMT), the world’s largest retailer, operating discount stores, supercenters, neighborhood markets, and Sam’s Club warehouses, is scheduled to report its fiscal first-quarter results on Tuesday, May 18. We expect WMT to likely beat the revenue and earnings expectations, driven by growth across all reporting segments – Walmart U.S, Walmart International, and Sam’s Club. The big-box retailer has benefited from its low prices and improving digital presence – all this while leveraging its vast network of brick-and-mortar stores. We expect the company to continue to modestly outperform the market in the upcoming Q1 release, driven by the boost of government stimulus efforts in the U.S. While a large part of the economy is reopening, businesses still saw capacity restrictions due to surging coronavirus cases in Q1 – resulting in likely limited spending in other discretionary non-essential markets. The retailer is guiding to look for comparable sales growth in the low single-digit percentage range in the current fiscal year 2022 (year ending Jan 2022). Our forecast indicates that Walmart’s valuation is $141 a share, which is 2% higher than the current market price of around $139. Look at our interactive dashboard analysis on WMT’s pre-earnings: What To Expect in Q1? for more details.

(1) Revenues expected to be ahead of consensus estimates

Trefis estimates Walmart’s Q1 2022 revenues to be around $136 Bil, 3% ahead of the consensus estimate of $132 Bil. The Covid-19 crisis boosted sales of essential products at both Walmart’s online and brick-and-mortar stores. Consequently, the retailer’s revenues grew 7% year-over-year (y-o-y) to $559 billion in fiscal 2021 (year ended Jan 2021). The company showed off its progress on this score by posting 10% higher comparable-store sales in fiscal Q1, a 9.3% boost in Q2, a 6.4% increase in Q3, and an 8.6% rise in Q4. Walmart’s e-commerce sales soared during the pandemic, surging 74% in Q1, 97% in Q2, and 79% in Q3, 69% in Q4 year on year – making way for an attractive time to launch its e-commerce-focused subscription service Walmart+.  By leveraging the company’s advantages in grocery and its store base, the new service can likely boost sales further, lock in a loyal customer base, and reward customers. For the full year, the big-box retailer also announced its capital expenditure plans of investing $14 billion – including spending on its supply chain, automation, and wages.

However, it should be noted that Walmart also recorded the slowest e-commerce growth rate in Q4 since the start of the global health crisis. This points toward some challenges it will face as tailwinds from the pandemic likely fade in a year. But for now, we expect the company to continue to ride on its growth momentum in Q1.

2) EPS likely to be slightly ahead of consensus estimates

WMT’s Q1 2022 earnings per share (EPS) is expected to be $1.23 per Trefis analysis, slightly above the consensus estimate of $1.21. While the retailer saw incremental Covid expenses in fiscal 2021 due to special bonuses to hourly employees, higher wages in fulfillment centers, and an exponential increase in digital sales during the quarter – its stronger revenue growth helped to offset those expenses. It is worth mentioning that online services that have gained steam, such as curbside pickup, require additional labor – translating to higher labor costs. Walmart has not been passing these costs on to its customers, even as more take advantage of the convenience of shopping online.

For the full year, we expect Walmart’s net margin to grow slightly from 2.4% in fiscal 2021 to 2.7% in fiscal 2022. This coupled with a 2% y-o-y decline in Walmart’s revenues, could lead to a rise of $1.5 billion y-o-y in net income to $15 billion in 2022. All this, resulting in a possible EPS increase from $4.75 in FY 2021 to around $5.39 in FY 2022.

(3) Stock price estimate marginally higher than the current market price

Going by our Walmart’s valuation, with an EPS estimate of around $5.39 and P/E multiple of 26.1x in fiscal 2022, this translates into a price of $141, which is marginally higher than the current market price.

For further comparison among peer groups, it is helpful to see how they stack up.  Walmart Stock Comparison With Peers shows how WMT compares against peers on metrics that matter.

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