NEW YORK (AP) -- A key Wall Street retail analyst is recommending investors buy Wal-Mart shares, citing that the world's largest retailer is enjoying increases in sales heading into the critical back-to-school shopping season.
In a note to clients Monday, David A. Schick, a retail analyst at Stifel Nicolaus, noted that the firm's survey of shoppers has showed increases in visits once a week and decreases in consumers that don't shop at Wal-Mart compared with a year ago.
Consequently, Schick upgraded his rating on Wal-Mart's stock to "Buy" from "Hold" and raised his second-quarter net income estimate to $1.20 per share from $1.17 per share. He also expects that for the full year, Wal-Mart should earn $5.09 per share, up from his original guidance of $4.97 per share.
Schick also believes that Wal-Mart's shares will trade at around $83 per share in the next 12 months. Wal-Mart shares have soared 23 percent since the beginning of the year and are now hovering around $74.
Wal-Mart's U.S. namesake business has been roaring back since late last year after suffering from nine straight quarters of declines in revenue at stores opened at least a year. Revenue at stores opened at least a year is considered a key measure of a retailer's health, because it excludes the impact from stores that open and close during the year. For the first quarter, Wal-Mart's U.S. business rose 2.6 percent. That marked the third consecutive increase for that metric and was its best performance in three years. Customer traffic was up for the second quarter in a row. And its clothing business posted its first sales gain in six years.
The Wal-Mart U.S. business had been struggling as its core low-income customers had been hard hit by joblessness and other challenges in slowly recovering economy. But Wal-Mart's weak sales had been largely because of mistakes it made in pricing and merchandise. It had veered away from its "everyday" low prices and gotten rid of popular merchandise. Last year, the retailer began adding back 10,000 products and refocused on keeping prices low. That instilled confidence among its shoppers that they can get the best prices on the items they need every time they visited the store.
Schick noted that he believes that lower gas prices have also helped Wal-Mart's low-income shoppers.
Wal-Mart is slated to report second-quarter results on Aug. 16. Analysts, on average, expect $1.17 per share on revenue of $114.95 billion for the quarter, according to FactSet. For the full year, Wal-Mart is expected to earn $4.92 per share, on revenue of $474 billion.
Shares slipped 4 cents to $74.51 in midday trading Monday. The stock has ranged between $48.31 and $75.34 in the past 52 weeks.