Can Walmart’s Stock Trade Lower Post Q2?

Note: Walmart’s FY’2023 ended in January 2023.

Walmart (NYSE: WMT), the world’s largest retailer (by revenue), operating discount stores, supercenters, neighborhood markets, and Sam’s Club warehouses, is scheduled to report its fiscal second-quarter results on Thursday, August 17. We expect WMT stock to likely trade lower with revenue and earnings missing consensus marginally in fiscal second-quarter results. Walmart expects a challenging and uncertain year in FY 2024 ahead of inflation and recessionary fears weighing on consumers. In FY 2024, Walmart sees net sales growing by 3.5%, almost in line with previous years. It should be noted that Walmart owes $49.5 billion in debt and has $10.6 billion in cash and cash equivalents at present. With financing rates significantly higher than in previous years, this significant debt not only increases long-term risk for the retailer but also increases interest costs.

Walmart Connect, the company’s digital advertising division, is the company’s most game-changing initiative right now. This is driven by online-shopping traffic at Walmart.com. The retailer’s ad revenue rose over 30% year-over-year (y-o-y) in Q1, in line with its advertising’s fiscal 2023 growth. These gains occurred despite the current challenging economic environment, which has slowed sales growth for digital ad giants such as Meta Platforms and Alphabet.

Our forecast indicates that Walmart’s valuation is $153 per share, which is 5% lower than the current market price. Look at our interactive dashboard analysis on WMT’s Earnings Preview: What To Expect in Q2? for more details.

(1) Revenues expected to be slightly below consensus estimates

Trefis estimates Walmart’s Q2 2024 revenues to be around $158.1 Bil, marginally below the consensus estimate. In Q1 2024, Walmart posted revenue of $152 billion, up 7.6% y-o-y, driven by 7.4% growth in U.S. same-store sales. In addition, its e-commerce revenue in the U.S. increased by 27%. This growth was aided by store-fulfilled pickup and delivery as well as advertising. We forecast Walmart’s Revenue to be $633.7 billion for fiscal 2024 (year ending Jan 2024).

2) EPS likely to marginally miss consensus estimates

WMT’s Q2 2024 earnings per share (EPS) is expected to be $1.67 per Trefis analysis, slightly missing the consensus estimate. With sales growing and its operating margin expanding during the quarter, WMT’s adjusted earnings-per-share growth outpaced revenue growth, rising more than 13% y-o-y to $1.47. As management explained during Walmart’s first-quarter earnings call, cost leverage exceeded management’s expectations for the period.

(3) Stock price estimate to be lower than the current market price

Going by Walmart’s Valuation, with an EPS estimate of around $6.14 and a P/E multiple of 25.0x in fiscal 2024, this translates into a price of $153, which is 5% lower than the current market price.

It is helpful to see how its peers stack up. WMT Peers shows how Walmart’s stock compares against peers on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

We don’t expect much returns from the WMT stock in the near- to mid-term. But what if you’re looking for a high-performance portfolio with a low downside instead? The Trefis Reinforced Value portfolio has beaten the market consistently while limiting losses during periods of sharp market declines.

[1] Month-to-date and year-to-date as of 8/16/2023
[2] Cumulative total returns since the end of 2016