Market watchers estimate 4.4% boost to Walmart’s third-quarter net income

Walmart will report third-quarter earnings on Tuesday (Nov. 16) and the consensus earnings estimate per share is $1.40, up 4.47% from a year ago. Net income is pegged at $3.903 billion for the quarter ending Oct. 31 and revenue is forecast at $135.5 billion, up just 0.59% from a year ago.

Half of the 32 analysts following Walmart remain bullish on the stock and half are neutral, according to Yahoo Finance.

The Bentonville-based retail behemoth benefited from the pandemic when much of the retail sector deemed non-essential were forced to close stores. This resulted in strong same-store sales that could provide tough comparisons against the year-ago period. The biggest concern analysts have with Walmart is whether it can retain the share it gained amid the pandemic and how well it will be able to mitigate rising prices with consumer inflation rising 6% in October, the biggest increase in 30 years.

The consensus is for comparable sales growth between 6% and 7% for the quarter as economists continue to tout the strength of consumers and their ability to shop and spend.

Analyst Greg Melich at Evercore expects earnings will be good but warns that shares could sell off Thursday if fourth-quarter earnings guidance falls below expectations. Analysts with Deutsche Bank believe Walmart is picking up steam with its membership program Walmart+ with more than 32 million subscribers. Walmart grew its membership numbers through July as Amazon membership growth was stagnant, according to Deutsche research. Simeon Gutman, analyst at Morgan Stanley, estimates the fee-based subscription service could generate more $1.5 billion in annual revenue.

“Membership fees nonetheless provide Walmart with a durable, recurring revenue stream,” he said. “The fees should also increasingly leverage as the cost of providing Walmart+ perks fall for Walmart and our analysis suggest it is already happening.”

Walmart also held its own against Amazon in a recent Profitero report. Online marketing and research firm Profitero compared online prices for 15,520 items in 15 categories at a dozen retailers over a 12-week period ending Oct. 3. The categories included appliances, fashion, food and beverage, toys, vitamins and supplements. Profitero said Amazon held its price gaps against other major retailers by 13% on average, while Walmart is closing the gap. The report found Walmart prices were within 5% or less of Amazon in 13 categories. The report showed Walmart closed the pricing gap with Amazon in food and beverage to 1% and within 2% in the appliance, beauty, home furniture, sports and outdoors and personal care categories. Walmart executives have said they will continue to reduce prices across multiple categories and are also using their scale to ensure stores are well-stocked for the holidays.

Analysts with UBS remain bullish on Walmart and its Everyday Low Price strategy saying it helped to pick up new customers from traditional grocers who are more likely to pass on inflationary prices to consumers. UBS expects modest growth in e-commerce for the quarter given the strong comparison from a year ago. UBS has a price target of $180.

Stephens Inc. analysts are also bullish on Walmart for the long-term but the estimate of $1.33 per share is on the low-end of the consensus for the quarter. Ben Bienvenu’s price target is $170 and while he said the retailer has momentum in the right direction, the slipping gross margin amid inflationary pressures and supply chain disruptions are worth watching.

KeyBanc Capital Markets analysts recently noted that the progress Walmart is making toward cloud technology and digital transformation will benefit future growth and margins. KeyBanc is bullish on Walmart with a target price of $180.

“Walmart needs to continue to migrate data to the cloud to allow for advanced data analytics, which should allow for more personalized consumer experiences at scale,” KeyBanc wrote. “Walmart data includes both in-store and online, and an example of personalization includes the ‘predictive basket,’ which can create quick add-on experiences for customers while shopping for habitual items such as groceries.”

Shares of Walmart (NYSE: WMT) closed Thursday at $148.50, up 6 cents. Over the past 52 weeks the shares have traded between a low $126.28 and a high of $153.66. Walmart share value has risen 3% year-to-date.