Shares of Walmart WMT have easily outpaced its e-commerce rival Amazon AMZN over the past 12 months. Walmart also posted yet another round of solid quarterly financial results last week amid heightened global economic slowdown worries.
Walmart posted stronger-than-projected earnings results last week, but they did mark a slight downturn from the year-ago period. Wall Street didn’t let WMT’s earnings spoil the parade because they knew EPS would take a small hit as the company ramps up its e-commerce business, delivery offerings, and more. This includes its 77% stake in one of India’s largest e-commerce sites, Flipkart, which it completed last August.
Flipkart could prove to be a long-term winner for Walmart as India expands its middle class. WMT has also boosted its business through a series of acquisitions that help it reach new customers. More than anything else though, the Bentonville, Arkansas-based firm has shown that its modern retail initiatives have paid off. The firm surpassed 1,100 grocery delivery locations and has more than 2,700 pickup locations, while its NextDay delivery service currently covers about 75% of the U.S. population.
All of this helped Walmart U.S. post 2.8% comps growth on top of the prior-year quarter’s 4.5% comps expansion, which company executives noted marked its strongest growth in this vital category on a two-year stack in over a decade. Meanwhile, Walmart U.S. e-commerce sales surged 37% on the back of strong online grocery sales. Walmart CEO Doug McMillon also noted that the firm is gaining market share as it deepens its competition against the likes of Kroger KR, Target TGT, and, of course, Amazon.
Like Walmart, Amazon doesn’t need much of an introduction. The Seattle-based online retailer’s penetration of the overall market from electronics to every-day household items and groceries helped spark fear throughout the brick-and-mortar world. Its Prime service has amassed over 100 million subscribers, who also have access to a streaming video platform that Jeff Bezos hopes will compete alongside Netflix NFLX and soon enough Disney DIS and Apple AAPL.
The company’s high-margin AWS cloud computing unit remains a leader in an industry that has transformed the way many people and companies interact with data and technology. AMZN has also expanded its logistics business and pharmaceutical offerings, and its digital advertising segment is now the third-largest in the U.S. behind only Facebook FB and Google GOOGL.
Investors should note that Amazon has posted its slowest revenue growth—all coming in below 20%—in years over the last three quarters. Nonetheless, Wall Street will likely adapt its expectations if this slower growth becomes the norm for AMZN, by looking for expansion in units such as third-party seller services.
Outlooks & Earnings Trends
Moving on, Walmart’s management called for its full-year U.S. comparable sales to come in at the upper end of a previously forecasted guidance of between 2.5% and 3% growth. Our Key Company Metrics estimates call for Walmart’s U.S. comps to climb 3.2% in the third quarter to surpass last quarter’s 2.8% expansion and come on top of the year-ago period’s 3.4%.
Overall, our Zacks Consensus Estimates call for WMT’s Q3 revenue to jump 3.3% to $128.99 billion, with full-year fiscal 2020 revenue projected to pop 2.4%. Peaking ahead to the following year, WMT’s fiscal 2021, the company’s revenue is expected to climb 2.9% above our current year estimate to hit $541.82 billion.
Analysts have upped their earnings estimates in a big way since the company reported last week to help WMT’s bottom-line look much stronger. Walmart’s adjusted Q3 earnings are now expected to come in flat from Q3 2019, while its Q4 EPS figure is expected to come in 2.8% higher. WMT’s current fiscal year earnings are now also expected to come in flat from 2019, with 2021’s figure projected to come in over 4% higher than the current year.
Amazon’s Q3 revenue is expected to pop 21%, with full-year 2019 sales projected to climb 19.3% to reach $277.88 billion. Fiscal 2020’s sales are then set to jump over 18.1% above 2019. But, as we touched on earlier, this would mark a slowdown compared to Amazon’s roughly 30% top-line growth in 2016, 2017, and 2018, but come in near 2015 and 2014’s approximately 20% expansion.
At the bottom end of the income statement, AMZN’s full-year 2019 earnings are projected to climb 21.8%, with 2020 expected to surge 37% higher than the current year. In contrast to WMT, Amazon’s earnings revision activity has trended heavily in the wrong direction recently.
It’s hard to pick a winner here, but we will nonetheless. Amazon is currently a Zacks Rank #3 (Hold) that is a diverse technology and retail firm that is poised to expand into new areas for years to come. AMZN stock also sits over 10% below its 52-week highs, which could give it some room to run in the second half of 2019.
Meanwhile, Walmart is a Zacks Rank #2 (Buy) that pays an annualized dividend of $2.12 per share, for a solid 1.9% yield at the moment. This could make WMT stock look even more attractive as the yield on 10-year U.S. Treasury notes rest at roughly 1.55%.
Walmart shares do sit near their 12-months highs, but WMT’s outlook, expansion plans, dividend, and valuation help give it the slight edge against AMZN.
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