Analysts expect higher net income from Walmart amid COVID-19 crisis

Walmart is one of the U.S. and global retailers that has remained open during COVID-19. The Bentonville-based retailer is set to report first-quarter earnings before the market opens on May 19. Wall Street expects a solid performance from the retail giant.

The average earnings-per-share estimate is $1.17, which would be 4 cents better than the results a year ago. Net income is expected to range between $3.179 billion and $3.318 billion, which would compare to $3.262 billion a year ago.

While sales are expected to be solid at $130.31 billion, operating margins could take a hit given the added costs of cleaning stores, hiring 200,000 employees, operating reduced hours and paying bonuses of nearly $1 billion in the quarter.

Analysts with Zacks said Walmart benefitted from increased traffic resulting from growing demand for essential items amid the pandemic. Spiked demand for items like toilet paper, disinfectants, alcohol, Clorox, over-the-counter drugs, bottled water, groceries and related staples, resulted from stay-at-home orders in many states with COVID-19 outbreaks.

“As a result of the surging demand, retail behemoths like Walmart have to restock their shelves faster than usual. Also, its robust e-commerce platform, especially grocery delivery, has been playing a key role in this crisis situation,” Zacks’ analysts noted.

The analysts said while sales are higher in some categories, sales for non-essentials and many higher-margin items like apparel will likely be down. They expect more pressure on gross margins and operating income for the quarter.

“Walmart has been seeing soft gross margin for a while now due to compelling pricing as well as growing e-commerce mix,” Zacks noted.

Even so, Walmart is expected to be one of the few winners amid the COVID-19 pandemic. Analysts with Bank of America reiterated their “buy” rating for Walmart on May 13 and raised the one-year share target price to $145, up $5 from the previous target.

Credit Suisse analyst Seth Sigman reiterated the “Outperform” rating on the stock in a note earlier this month and said, “we raise our comps estimates for the first half, although we lowered earnings per share to reflect incremental margin pressures/ cost headwinds/foreign exchange impact.”

“Based on our work, we are more confident in sales outlook past the first quarter while we also believe Walmart will be better positioned to navigate what could be very choppy consumer waters ahead and benefit med/long-term from significant share gains from the structural changes in shopping behavior we are seeing,” Sigman said.

RBC Capital also reiterated its “buy” rating this week and raised its sales growth projections to 12%, up from 2% previously, citing strong sales for food and consumables in March and April. The street is expecting U.S. comp sales of 9.3%, up from the prior forecast of 5.5%, and the original forecast range of 2-to-3.5%.

Staying open during COVID-19 has pushed the stock higher as a defensive play in unsettled times. A recent report by Gordon Haskett found Amazon ranked as the top retailer of choice during the COVID-19 crisis and Walmart was a close second and gaining momentum. Analysts also agreed the nearly $1 billion in employee bonuses announced recently signal the retailer will return solid results, or the company would not spend that cash.

Walmart shares (NYSE: WMT) have been one of the top performers in recent weeks, up 3.85% year-to-date. Shares were sold fairly heavily toward the end of February and through the first half of March, but less so than the overall bearish market.

The share price closed Friday at $125.94, up $2.52. During the past 52 weeks, Walmart shares have traded between $99.91 and $133.38.