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The Zacks Analyst Blog Highlights: Walmart, Facebook, Walgreens, Target and Costco

Zacks Equity Research
Wal-Mart spread optimism in the retail space by reporting solid first-quarter fiscal 2020 results.

For Immediate Release

Chicago, IL –May 13, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Walmart WMT, Facebook FB, Walgreens WBA, Target TGT and Costco COST.

Here are highlights from Friday’s Analyst Blog:

Buy Walmart (WMT) Stock Ahead of Q1 Earnings Thursday?

Walmart stock is up roughly 8% in 2019 to outpace its industry’s 5.5% average climb. Despite the positivity, shares of WMT have lagged the S&P 500’s 14% surge on the back of tech giants like Facebook. But with the retail behemoth set to release its first-quarter fiscal 2020 financial results on Thursday, May 16, it’s time to see if investors should consider buying Walmart stock.

Recent News & Overview

The biggest Walmart news to speak of in the last few days was that it announced earlier this week that it raised its tobacco purchase age to 21 and discontinued sale of fruit and dessert nicotine flavors. The move is part of an effort to curb underage tobacco purchases, which helped WMT and other well-known retailers come under fire from the FDA earlier this year. The administration accused Walmart, along with Walgreens and others of failing to prevent tobacco sales to minors.  

Walmart’s move might help in terms of public relations, but Wall Street and investors want to know if it can keep up its impressive revenue growth and e-commerce sales. The world’s largest retailer’s full-year U.S. e-commerce sales jumped 40% in fiscal 2019, with U.S. comparable sales up 3.6%. Walmart pointed to increased online grocery pickup, higher average tickets, and a broader assortment on Walmart.com, for its e-commerce strength.

Walmart has revved up its digital commerce business in recent years in an effort to fend off Amazon’s encroachment and prepare for a more e-commerce-heavy retail future, alongside rivals such as Target and Costco. The firm 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.

The company has also spent the last few years buying up smaller companies such as Jet.com, ModCloth, Bonobos and Moosejaw in an effort to expand its reach and consumer base. Plus, Walmart now owns roughly 77% of one of India’s largest e-commerce sites, Flipkart. Walmart’s push into India might help the company expand even further down the road, with the country’s economy set to boom and perhaps even surpass China in terms of growth.

As we mentioned at the top, shares of WMT are up around 8% on the year. Walmart stock also popped 1.58% through mid-afternoon trading on Friday to hover at around $101.11 per share, down roughly 5% from its 52-week highs.

Outlook

Walmart executives said last quarter that they expect U.S. e-commerce sales to climb around 35% above 2019’s 40% expansion. Meanwhile, the firm provided U.S. comparable sales growth guidance in the range of +2.5% to +3%—which would fall below the prior year’s 3.6% growth.

Moving on, our current Zacks Consensus Estimates call for the firm’s Q1 revenues to jump by 2.1% to reach $125.24 billion. The company’s full-year fiscal 2020 revenue is projected to climb 2.7% to touch $528.21 billion, with 2021’s sales expected to come in 3.2% higher than our current-year revenue estimate.

At the bottom end of the income statement, Walmart’s adjusted quarterly earnings are projected to tumble 10.5%, with its Flipkart acquisition expected to eat into profits. With this in mind, the company’s full-year EPS figure is projected to slip 3.3%. Peeking further ahead, however, the company’s full-year 2021 earnings are projected to jump 5.2% above our current-year estimate.

Bottom Line

Walmart is currently a Zacks Rank #3 (Hold) and has experienced almost zero earnings estimate revision activity over the last 60 days. This means that analysts have not changed their mind in either direction. Plus, it is clear that WMT’s earnings appear to be headed in the wrong direction this year.

In the end, Wall Street will likely focus on e-commerce sales and comparable stores sales expansion. Therefore, investors might want to wait to see how WMT stock moves directly following its report, and play those results.

It is also worth noting that Walmart is currently trading at 20.7X forward 12-month Zacks Consensus EPS estimates. This marks a premium compared to its industry’s 17.5X average and is far above its own ten-year median of 14.2X. Therefore, Walmart’s valuation picture appears somewhat stretched at the moment, especially when we see that WMT’s price/sales of 0.57 comes in well above its industry’s 0.25 average and rivals such as Kroger’s 0.17.

Walmart is a dividend payer that has raised its quarterly cash dividend every year since first declaring one nearly 50 years ago. But now might not be the best time to buy shares of WMT heading into earnings.

The firm is scheduled to release its Q1 fiscal 2020 financial results before the opening bell on Thursday, May 16. Make sure to come back to Zacks for a full breakdown of Walmart’s actual metrics.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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