Walmart (WMT - Free Report) stock is up over 13% in the last three months as the company continues to prove it is ready to thrive in the e-commerce age. Now, with the retail titan set to report its third-quarter financial results before the opening bell on Thursday, November 14, let’s break down Walmart to see if investors should consider buying WMT shares.
U.S. markets have started November on a hot streak, with all three major U.S. indexes at or near brand new highs. The positivity comes on the back of reported U.S.-China trade war progress, better-than-feared quarterly earnings results, a third Fed interest rate cut, and solid U.S. jobs data. Clearly, uncertainty remains between the world’s two largest economies and the broader global economy appears to be slowing down.
Nonetheless, the National Retail Federation projects strong holiday shopping season spending and U.S. unemployment rests near 50-year lows. This bodes well for retailers from Target (TGT - Free Report) and Costco (COST - Free Report) to Lululemon (LULU - Free Report) and Nike (NKE - Free Report) , and of course, the world’s largest retailer.
Over the last several years, Walmart has ramped up its e-commerce business and rolled out multiple delivery and curbside pick up offerings in order to compete in a modern retail environment. The Bentonville, Arkansas-based company last quarter surpassed over 1,100 delivery locations in the U.S. and more 2,700 pickup locations. Meanwhile, its NextDay delivery covers roughly 75% of the U.S. population as it fights to compete against Amazon (AMZN - Free Report) .
Walmart’s Q2 U.S. comparable store sales were up 7.3% on a two-year stack, which represented its strongest growth in over a decade. The firm’s U.S. e-commerce sales also soar 37%. And investors should note that WMT has purchased smaller digital-focused retailers and niche higher-end companies in recent years such as Jet.com and Bonobos. Walmart also owns roughly 80% of Flipkart, which is one of India’s largest e-commerce sites.
WMT stock is up 50% over the last five years, against its industry’s 30% average, which includes a downturn that stretched almost all of calendar year 2015. Shares of Walmart have also surged 70% in the last 36 months and nearly 30% in 2019—the Food/Drug-Retail/Wholesale Market is up 16%. WMT stock closed regular trading Monday at $119 per share on lower-than-average volume, just off its 52-week highs of $120.92.
Along with Walmart’s climb has come a somewhat stretched valuation picture. WMT stock is trading at 23.5X forward 12-month Zacks Consensus EPS estimates, which marks a premium compared to its industry’s 18.7X average. On top of that, WMT rests right at its five-year high and above its three-year median of 19.5X—its forward P/S ratio is also higher than it has been.
Walmart does currently hold “B” grades for both Growth and Momentum in our Style Scores system for an overall “A” VGM score. The retailer also currently pays an annualized dividend of $2.12 per share, for a 1.8% yield—not too far below the 10-year U.S. Treasury’s current 1.9%
Q3 Outlook & Beyond
Looking ahead, our current Zacks Consensus Estimates call for Walmart’s Q3 fiscal 2020 sales to pop 3.3% to $128.99 billion. This would top last quarter’s 1.8% sales expansion and mark the strongest growth since the second quarter of fiscal 2019.
More specifically, Walmart’s quarterly same-store sales are expected to pop 3.1%. This would come on top of Q3 2019’s 3.4% comps expansion and beat last quarter’s 2.8%.
Meanwhile, Q4 sales are projected to jump 2.9% to help lift full-year sales by 2.4% to $526.96 billion. Better yet, the company’s fiscal 2021 revenue is expected to climb 3% above our current-year estimate to $542.94 billion. For reference, WMT’s fiscal 2019 sales jumped 2.8% and 2018 revenues popped 3%.
Walmart’s adjusted quarterly earnings are projected to pop 0.93% to come in at $1.09 per share, with Q4’s EPS figure expected to jump 2.8%. WMT’s full-year earnings are expected to climb marginally as it spends heavily on growth, with 2020 set to surge 4.3% higher.
Walmart’s recent positive earnings revision activity helps it earn a Zacks Rank #2 (Buy) at the moment. And in yet another sign of its future-looking initiatives, the firm announced on Monday that its customers will be able to voice order through Apple’s (AAPL - Free Report) Siri, as part of a larger voice-command push.
Buying stocks around earnings is never easy, especially for stocks sitting near their highs. In the end, though, Walmart looks strong heading into its quarterly financial release and is certainly worth keeping an eye on.
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