Analysts are advising some shopping for Walmart (WMT) stock ahead of its quarterly earnings release.
Shares of the largest employer in America have bounced upward, aided by the announcement of a rollout of next-day delivery that will beat its chief eCommerce rival Amazon (AMZN) to market and come without the baggage of membership fees and capital expenditure. That more cheerful feeling about the stock could well carry throughout the month if analysts are correct about its upcoming earnings.
Analysts are expecting the company to report $1.02 per share on revenues of $125.24 billion for the April ended fiscal first quarter on Thursday morning, despite noisy numbers coming from benefits scheduling shift, weather headwinds, and gas price increases.
"The company is, in our view, on track to deliver on its 2019 targets, and we believe the model is supportive of higher core operating profit as digital, grocery, and labor investments start paying dividends through more profitable growth," Deutsche bank analyst Paul Trussell said. "We continue to like WMT as the retailer is poised to start seeing returns on the many years of investment in eCommerce, supply chain, and customer service, and we believe is now in position to accelerate market share gains in grocery while also growing core EBIT dollars."
He added that as the landscape continually shifts toward convenience, Walmart appears poised to be a major beneficiary due to its delivery and distribution investments.
As a result, he set a $118 price target for the stock, suggesting significant upside from the stock's slide amid tariff anxiety.
People, Pricing, and Technology
BMO Capital Markets Kelly Bania concurred, noting the company's technological investments that set it apart from its retail peers.
"We believe Walmart is well positioned to leverage its investments in e-commerce, technology, supply chain, and people in recent years," she wrote in a note to clients. "We believe WMT deserves a premium valuation, particularly given the magnitude of eCommerce losses at both Flipkart and in the US, which we believe may eventually improve."
She set a $115 price target, bolstered by the expectation of same store sales coming in slightly above the consensus, and technology investments that should keep the company's hallmark pricing power in play.
The investment in its people is a pivotal sticking point as politics continue to bear on stocks in recent months. For one, the company has been a favored target of presidential hopeful Bernie Sanders (I-VT).
While Walmart claims it cannot afford to pay its workers $15 an hour, it was able to find enough money to pay its CEO more than $22 million last year.
Tomorrow @RepRoKhanna and I will be introducing The Stop WALMART Act to put an end to their outrageous greed.— Bernie Sanders (@SenSanders) November 14, 2018
However, the investment the company has made by raising wages and increasing training programs may not only work to alleviate the political pressure but it makes business sense as well.
Stephens research analyst Ben Bienvenu, whose firm maintains common stock holdings in Walmart and provides investment banking services for the retailer, explained the dynamic in an interview with Real Money late in 2018.
"Same store traffic has really increased since they started this investment [into the workforce]," he told Real Money. "[Walmart leadership] looks at the world through the prism of benefiting their constituents. Historically, this has been by providing the lowest prices possible to their customers," he said.
However, at present, the company's more complex view appears to be benefiting its bottom line and earnings results.
The analyst consensus price target stands at $109.32 heading into earnings with a "Buy" rating, suggesting the stock's slide from its late April highs could have created a prescient buying opportunity ahead of earnings.
For reference, the stock has reacted positively on three of its last four quarterly earnings, highlighted by a nearly 10% surge in August when the company reported its fiscal second quarter results. The largest downside came in the fourth quarter of 2017 report, wherein e-Commerce trends stung the stock as it was seen losing out to Amazon.
Ahead of the release, analysts are expecting that troubling trend to reverse and carry positive momentum into the print.