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Buy Walmart (WMT) Stock After Blowout Holiday Quarter Earnings?

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Walmart (WMT - Free Report) posted better-than-expected Q4 earnings Tuesday, along with strong e-commerce sales and solid U.S. comps growth. So is now the time to buy Walmart stock as the company continues to prove it can adapt to an Amazon (AMZN - Free Report) -obsessed retail age?

Quick Q4 Overview

Walmart’s holiday quarter revenues climbed 1.9% to reach $138.8 billion. This fell just below our $139.30 billion Zacks Consensus Estimate, but beat Q3’s 1.4% jump and came on top of Q4 fiscal 2018’s 4.1% top-line growth. Plus, the Commerce Department last week said overall U.S. holiday sales saw their largest drop since 2009. Therefore, along with Walmart’s 40% full-year e-commerce growth and 3.6% fiscal 2019 U.S. comps expansion, the retail powerhouse seems to have shaken off any worries about Amazon’s encroachment.

Meanwhile, Walmart’s adjusted quarterly earnings jumped 6% to reach $1.41 per share and easily surpassed our $1.33 estimate. Shares of WMT have slipped since the company reported its Q4 financial results. Still, investors will see that Walmart stock has outpaced the S&P 500 and its industry’s average over the last three years.

 

Outlook

Walmart reiterated its fiscal 2020 guidance that calls for EPS to decline by a low single-digit percentage, but post low mid-single digit growth when excluding its Flipkart investment. The retail behemoth now owns 77% of one of India’s largest e-commerce sites, which could prove key down the road with the country’s economy set to boom and maybe even surpass China.

On top of that, Walmart projects that its e-commerce sales will climb around 35% above last year’s 40% digital sales expansion. The company pointed to increased online grocery pickup, higher average tickets, and a broader assortment on Walmart.com, among other reasons, for its e-commerce strength.

Walmart plans to add 1,000 grocery pickup locations in fiscal 2020 to end the year with 3,100. The company also expects to double its grocery delivery locations to 1,600. Walmart is of course not alone, as competitors Kroger (KR - Free Report) , Costco (COST - Free Report) , and Target (TGT - Free Report) all ramp up their digital retail businesses. Still, these e-commerce focused initiatives helped Walmart report U.S. comp sales on a two-year stack of 6.8%, which marked its strongest growth in nearly a decade.

 

Bottom Line

Walmart is a Zacks Rank #3 (Hold) that sports “B” grades for Value and Growth and an “A” for Momentum in our Style Scores system. The “Retail – Supermarkets” industry currently rests in the top 10% of our 256 industries, and we know that stocks in strong industries can outperform the market. 

WMT is currently trading at 21.6X forward 12-month Zacks Consensus EPS estimates, which marks a slight premium compared to its industry’s 19.6X average. With all that said, now might be a solid time to think about buying this dividend paying retail powerhouse that has raised its quarterly cash dividend every year since first declaring one in March 1974.

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