Market watchers raising expectations on full-year earnings for Walmart

Walmart delivered a strong one-two punch in the second quarter, according to retail analyst Walter Loeb, who said the strength of digital sales combined with quick delivery boosted sales and earnings ahead of Wall Street estimates.

Loeb said the solid 2.8% domestic comp sales and 37% e-commerce growth confirm the consumer’s trust in the company and validate management’s drive to serve customers more efficiently. Loeb added Walmart management raising comp sales expectations for the full year are yet another sign the retailer is beating the odds.

“I expect more strength as customers again veer to do discount store shopping. To support this trend, management has indicated that it is looking for alternative sources of supply, thus avoiding the impact of possible tariffs and any negative consumer reactions to them. All of this points to a strong year for Walmart and will improve its competitive position in the market,” Loeb noted.

Stephens Inc. and Raymond James & Associates were already bullish on Walmart ahead of the second-quarter earnings report Aug. 15. That bullish sentiment continues. Following the report, Ben Bienvenue of Little Rock-based Stephens said, “We continue to be impressed by management’s ability to execute on its strategy, and transition Walmart into a period of sharper cost management while still investing in the business to drive growth in market share. We are reiterating our overweight rating and raising our price target to $125 (from $117 prior).” (Stephens conducts investment banking services with Walmart on occasion is compensated accordingly.)

Bienvenue increased his earnings per share guidance for the full-year to $4.94, from $4.90. He said this reflects the better expense leverage and higher third-quarter comp sales estimates given by Walmart. He said Walmart will face a higher tax rate and likely weaker international sales which will weigh down the increase.

Raymond James & Associates analyst Budd Bugatch reaffirmed his outperform rating after the earnings report. He increased the share price target to $120. (Raymond James also conducts investment bankings services for Walmart as is compensated accordingly.)

“Walmart’s earnings reinforced our view that the recent top-line momentum across its U.S. business can be sustained, even versus more challenging comparisons and with recent progress in eCommerce gross margins and SG&A leverage, the cost curve is finally starting to bend in a favorable direction,” Bugatch noted.“Strategically, we continue to support management’s long-term strategy of investing in growth geographies (China & India) and in growth opportunities of the new world of retailing (i.e., Flipkart & 1-day delivery).”

Bugatch said Walmart’s strong financial position ($15 billion in free cash flow annually) compensates for the drag of e-commerce sales should they stall.

Raymond James analysts also raised their full-year earnings guidance to $4.95 per share, up from $4.80 previously.

“We are encouraged by the ongoing progress in U.S. e-commerce, the second-quarter U.S. e-commerce sales grew 37% from the prior year (at least 2 times the industry growth rate), on top of 40% growth in the prior year, implying an acceleration in the two-year stack growth rate,” Bugatch noted.

Walmart shares (NYSE: WMT) closed Tuesday (Aug. 20) at $112.05, down $1.76. For the past 52 weeks Walmart shares have traded between $85.78 and $115.49. Walmart shares are up 22% year-to-date.