Walmart estimated to post solid third-quarter earnings, continue same-store gains

Equity analysts are looking for solid third quarter financials on the top and bottom lines from Walmart when the retail giant reports earnings early on Thursday (Nov. 15). Walmart is expected to report third-quarter revenue of $125.4 billion with earnings per share of $1.01, according to Wall Street consensus estimates.

Revenue is expected to grow 1.8% from the $123.179 billion reported a year ago. Earnings per share are expected to be 74% higher year-over-year. Analysts expect comparable same-store sales to rise 3.1% in the U.S. segment with Sam’s Club seeing comp sales growth of 2.9%.

Walmart is expected to report operating income of $4.8 billion in the quarter which ended Oct. 31. A year ago, operating income was $4.754 billion. The consensus for gross margin into the recent quarter is 25.5% of sales. Walmart’s e-commerce business has likely slowed from the 40% gains in the second quarter, but analysts said it could top the percentage online growth seen at Amazon and Target.

Analysts with Raymond James & Associates expect Walmart to outperform its peers in this coming year and beyond. Raymond James analyst Budd Bugatch rates the shares a “buy” with a target price of $105.

“Strategically, we support management’s long-term strategy that includes continuing investments in growth geographies (China & India) and growth opportunities of the new world of retailing (i.e. Flipkart). In addition, its core U.S. business (in-store and online) continues to operate at a high level, with solid momentum with 14 consecutive quarters of U.S. traffic growth and a pace of innovation we have not witnessed from Walmart in over a decade,” Bugatch recently noted.

He said Walmart’s strategy comes at a high price and will reduce operating income and earnings growth in the near to mid-term. But his view of the stock is favorable for investors who need a longer-term horizon.

Ben Bienvenue, an analyst with Stephens Inc., is also bullish on Walmart. After the recent investor meeting with Walmart executives in Bentonville, Bienvenue reiterated his “overweight or buy” rating and set a new target price of $115. He said as Walmart continues to invest in price and store experience, it’s reaping a payback in sustained traffic improvements.

“In our view, Walmart’s productivity loop is the healthiest it’s been in years,” Bienvenue noted.

He said Walmart is testing numerous actions in stores from the back of store “Fast Unloader” to mobile checkout options for consumers this holiday period to eliminate waiting in line. He said Walmart also is winning on price against some of its biggest competitors and the price separation should help boost same-store sales growth into next year.

Bienvenue also said Walmart’s renewed focus on key markets internationally is also paying off. He believes the international segment will continue to be a growth driver in the coming years. Sam’s Club is also seeing acceleration which Bienvenue expects can be sustained through coming quarters. He said Sam’s is seeing membership growth and the partnership with Instacart is likely to help Sam’s e-commerce growth continue. Sam’s reported a 28% spike in e-commerce growth in the first half of this year.

Shares of Walmart stock (NYSE: WMT) have been on a bull run since early October. Shares closed Tuesday at $102.94, down 93 cents on the day.  Shares are up 10% since Oct. 1 when they were trading at $93.31. Matthew Boss, a retail analyst with J.P. Morgan, said Walmart became a safe haven play when market volatility ran high through October.

“The consumer is in a good place with unemployment at a 49-year low and consumer confidence at a 20-year high. That said, there will continue to be more disruption in retail and this holiday will mean more bankruptcies and store closures for some. Retailers that can relay value and offer convenience are those in charge of their own destinies. I put Walmart in that category,” Boss said.

Boss said Walmart is an offensive play and a defensive play. Since October, shares are trading at about 22 times earnings as equities on the whole lost ground. That’s why more investors moved to Walmart seeking some stability, he said.

Craig Johnson, an analyst with Piper Jaffray, said he thinks Walmart shares are ready for another breakout to $110 with a total return opportunity of about 10%.

“We would be out buying this stock now,” Johnson said this week.

Walmart has maintained its top line revenue projections, but it recently lowered its earnings guidance by 25 cents to a range of $4.65 to $4.80 for the integration of the $16 billion Flipkart deal.