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Walmart (WMT) Before Q1 Earnings: Growth or Value Opportunity?

Retail giant Walmart Inc. (WMT) is all set to announce its first-quarter earnings on Thursday (May 16). While its strategic acquisitions and collaborations are establishing the company as a leader in the retail landscape, does WMT exhibit growth or value opportunity ahead of its earnings? Let’s find out…

Walmart Inc. (WMT) will announce its fiscal 2024 first-quarter earnings on May 16. Forecasts indicate a 4.7% year-over-year revenue surge to $158.14 billion, reflecting steady growth and financial resilience. Moreover, analysts expect a 7.1% uptick in the company’s EPS from the preceding year’s period to $0.52.

Walmart has consistently exceeded revenue estimates in each of the trailing four quarters, including the fourth quarter. Its revenues increased 6% annually to $173.4 billion (and reached $648.13 billion for the entire year). Sales grew across all three operating segments: Walmart US; Walmart International; and Sam’s Club.

Having successfully transitioned into an omnichannel retailer by bolstering its e-commerce platform and expanding its network of fulfillment centers, Walmart is now focusing on its advertising business to drive further revenue growth. E-commerce sales surged approximately 20% in fiscal 2024, surpassing $100 billion for the first time. On top of it, its attributable net income for the whole year came in at $15.51 billion or $5.74 per share, up 32.8% and 34.4% year-over-year.

The company forecasts a 4% to 5% increase in consolidated net sales for its fiscal first quarter, along with adjusted earnings ranging from $1.48 to $1.56 per share before stock split adjustments. Looking ahead to fiscal 2025, the retailer expects consolidated net sales to grow by 3% to 4%, with adjusted earnings projected to be between $6.70 and $7.12 per share before stock split adjustments.

In efforts to ramp up its advertising division, on February 20, WMT announced its intent to acquire Vizio, a leading smart TV manufacturer, for over $2 billion. This potential acquisition could significantly expand WMT’s presence in the U.S. television market, potentially capturing over 20% of the segment.

According to Nicholas Zangler, an analyst at Stephens, acquiring Vizio would provide WMT access to an engaged user base of nearly 18 million individuals. Furthermore, it would enable WMT to tap into Vizio’s burgeoning software platform business, which has seen annual advertising revenues grow by over 27% and boasts an impressive margin rate exceeding 60%.

On the same day, the company raised its dividend by 9% year-over-year to $0.83 per share, underscoring its commitment to rewarding shareholders. With a current yield of approximately 1.37%, WMT’s dividend policy remains attractive for investors seeking income. Further, this hike marks Walmart’s 51st consecutive year of dividend growth, solidifying its status as a Dividend King.

Shares of WMT have gained 12.4% over the past nine months and 18.4% over the past year, closing the last trading session at $60.41.

Here are the financial aspects of WMT that could influence its price performance in the near term:

Strong Financials

WMT’s total revenue for the fiscal fourth quarter (ended January 31, 2024) increased 5.7% year-over-year to $173.39 billion, as shoppers turned to the big-box retailer throughout the holiday season and the company’s global e-commerce sales grew by double digits (23% year-over-year). Revenue from Walmart’s International unit also saw a substantial uptick, growing by 17.6% year-over-year to $32.42 billion.

Operating income rose 30.4% from the prior-year quarter to $7.25 billion. However, the company’s net income fell to $5.49 billion compared with $6.28 billion in the year-ago quarter. Despite this, adjusted earnings per share grew 5.3% from the year-ago value to $1.80.

As of January 31, 2024, its cash and cash equivalents stood at $9.87 billion, up 14.4% compared to $8.63 billion on January 31, 2023. Additionally, the company reported a free cash flow of $15.12 billion for the full year, representing a 26.2% year-over-year increase.

Rosy Annual Forecasts

The consensus revenue estimate for the current year ending January 2025 stands at $670.15 billion, signaling a 4.3% year-over-year increase. Likewise, the company’s EPS is anticipated to witness a 6.8% uptick from the previous year, reaching $2.37.

Looking ahead, analysts anticipate a 3.9% increase in revenue for the fiscal year 2025 (ending January 2026), with projections reaching $696.19 billion. Similarly, EPS for the next year is expected to experience a growth of 9.5% from the prior year, settling at $2.59.

Sound Historical Growth

Over the past three years, WMT’s revenue and EBITDA increased at a CAGR of 5.1% and 4.9%, respectively. Its EPS grew at a 6.5% CAGR during the period. Moreover, the company’s net income rose at a 4.7% CAGR over the same time frame.

Mixed Valuation

In terms of forward non-GAAP P/E, WMT is trading at 25.55x, 40.5% higher than the industry average of 18.18x. Likewise, the stock’s forward EV/EBITDA and forward Price/Book of 13.23x and 5.39x are 24.8% and 85.1% higher than the industry average of 10.60x and 2.91x, respectively.

On the other hand, WMT’s forward EV/Sales of 0.82x is 52.5% lower than the 1.72x industry average. Also, its forward Price/Sales multiple of 0.73 compares to the industry average of 1.25.

Robust Profitability

WMT’s trailing-12-month asset turnover ratio of 2.62x is 213.8% higher than the 0.83x industry average. Its trailing-12-month Return on Common Equity (ROCE) of 19.32% is 71.4% higher than the industry average of 11.28%. Furthermore, the stock’s 11.30% trailing-12-month Return on Total Capital (ROTC) exceeds the 6.75% industry average by 67.4%.

POWR Ratings Exhibit Solid Prospects

WMT’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. WMT has an A grade for Stability, consistent with its 60-month beta of 0.49. The stock’s B grade for Momentum is justified by its share price currently trading above its 50-day moving average of $60.18 and 200-day moving average of $55.47.

Furthermore, its B grade for Sentiment and Quality is in sync with its optimistic analyst estimates and robust profitability.

Within the A-rated Grocery/Big Box Retailers industry, WMT is ranked #2 out of the 36 stocks.

Beyond what we’ve stated above, we have also rated the stock for Growth and Value. Get all WMT ratings here.

Bottom Line

As Walmart gears up to report its first-quarter earnings on Thursday, online spending remains robust among Americans, driven by demand for cheaper products. However, the company, known for its bargain-priced merchandise, faces formidable competition from online retail giants like, Inc. (AMZN) in critical product categories like personal care, clothing, and electronics.

Nonetheless, the retail giant has a good track record of successfully navigating market challenges, including recent macro uncertainties, by delivering customer value through competitive prices and convenience. Moreover, with recent strategic initiatives, the company is poised to solidify its position as a retail powerhouse.

Considering the above factors, we believe that Walmart has more tailwinds than headwinds, and there is room for the stock to grow. Hence, scooping up the shares of this A-rated stock could bring significant growth opportunities for your portfolio.

How Does Walmart Inc. (WMT) Stack Up Against Its Peers?

While WMT has an overall grade of A, equating to a Strong Buy rating, you may also check out these other stocks within the Grocery/Big Box Retailers industry: Village Super Market, Inc. (VLGEA), Empire Company Limited (EMLAF), and Koninklijke Ahold Delhaize N.V. (ADRNY), carrying A (Strong Buy) ratings. To explore more Grocery/Big Box Retailers stocks, click here

What To Do Next?

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WMT shares were trading at $59.80 per share on Tuesday afternoon, down $0.61 (-1.01%). Year-to-date, WMT has gained 14.58%, versus a 10.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.


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