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Buy This Blue-Chip Retail Stock Before Q2 Earnings and Hold?

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The S&P 500 and the Dow both broke records yet again Wednesday, while the Nasdaq hovers within touching distance of its highs from earlier this month. Wall Street remains optimistic in the face of concerns ranging from the Delta coronavirus variant to rising prices.

The positivity comes on the back of a better-than-expected July jobs report that marked the biggest jump since August 2020 and helped send the unemployment rate to its lowest levels since March 2020. Investors were also likely pleased to see Goldman Sachs turn more bullish last week.

The firm lifted its 2021 target for the S&P to 4700, up from 4300, which currently implies roughly 6% upside for the remainder of the year. The Wall Street titan also raised its 2022 target, with interest rates favoring equities and likely prolonging there is no alternative investing.  

The continually improving earnings picture further solidifies the broader bullish case. Second quarter earnings season is winding down, with only around 10% of companies in the S&P 500 left to report their financial results. The results have been largely stellar across the board, with big tech once again standing above the crowd (also read: Taking Stock of the Impressive Earnings Picture).

The week of August 9 features reports from Disney (DIS - Free Report) , eBay, Tyson Foods, and others. Wall Street will then turn its attention to retail heavyweights such as Home Depot (HD - Free Report) , Target (TGT - Free Report) , and the stock we dive into today…

Zacks Investment Research
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Walmart (WMT - Free Report) – Q2 Financial Results Due August 17

Walmart posted one of its best performances in years, with sales up 7% in 2020 (FY21) as consumers flocked to its stores and gobbled up its bolstered e-commerce and delivery options. Walmart’s U.S. comparable sales surged nearly 9%, with e-commerce revenue up a whopping 80%. The company has multiple delivery and pick-up options and last year it launched its subscription service to help it further challenge Amazon (AMZN - Free Report) .

WMT has expanded its consumer base and diversified its portfolio as smaller brands thrive online. Walmart’s diversification efforts include teaming up with secondhand e-commerce clothing firm ThredUp, partnering with Shopify (SHOP - Free Report) to bring more small businesses to its own third-party marketplace, and more.

Walmart has also beefed up its digital advertising business. Executives have said that the “rapidly growing advertising platform… should be a multi-billion-dollar business in the very near future.”

Walmart in early May entered an agreement to acquire MeMD. The deal is set to help it provide access to virtual, telehealth across the country and complement its in-person Walmart Health centers. The company is also expanding its fintech capabilities. All of these recent efforts bolster its one-stop-shop standing and set it up to thrive for decades to come.

Zacks Investment Research
Image Source: Zacks Investment Research

WMT started to slip late last year and it fell further after it missed Q4 estimates and provided disappointing guidance in February. The retailer then crushed our Q1 EPS estimate by 39% and its bottom-line estimates have improved since its last report. WMT’s earnings estimate positivity helps it land a Zacks Rank #2 (Buy) at the moment, alongside its “B” grade for Growth in our Style Scores system.

Wall Street is bullish on Walmart, with 12 of the 18 brokerage recommendations Zacks has for the stock at “Strong Buys,” with three more “Buys,” and none below a “Hold.” On top of that, its 1.47% dividend yield tops the S&P 500 average and the 10-year U.S. Treasury.

It’s competing against an unprecedented year, with FY22 sales projected to slip 1.2% to $552.3 billion. Fortunately, revenue is expected to come in above its pandemic-driven year in FY23. Meanwhile, its adjusted earnings are projected to climb 9% in FY22 and another 6% higher next year.

The stock has surged over 7% in the last month as it tries to break out above its late-2020 highs. WMT is up only 13% in the last year to lag its industry’s 23% climb. Having jumped above its 50-day and 200-day moving averages near the end of July, Walmart could be prepared to extend its recent run. Walmart is also trading at a 10% discount to its own year-long highs at 24.2X forward 12-month earnings.

Given this backdrop, Walmart appears to be worth considering as a long-term buy heading into its upcoming earnings report on Tuesday, August 17.