Walmart Earnings Beat Wall Street Estimates; Buy with Target Price $175

Walmart Inc, an American multinational retail corporation that operates a chain of hypermarkets, reported better-than-expected revenue and profit in the third quarter, largely driven by a surge in online sales as buyers purchased everything from the comfort of their homes amid the COVID-19 pandemic.

The world’s largest retailer by revenue said its online sales grew 79% with total revenue increasing 5.2% to $134.71 billion, beating market expectations of $132.23 billion. Walmart sales at U.S. stores open at least a year rose 6.4%, beating Wall Street consensus of 4.16% growth.

Walmart reported adjusted earnings of $1.34 per share, topping analysts’ expectations of $1.18. International net sales were $29.6 billion, an increase of 1.3%.

“We would characterize this as more of a true upside surprise, even though comps were up 9.3% last quarter. Recall that Walmart started the period off slowly due to a late start to back to school. These results suggest that trends may have improved a bit as the quarter went on. Most line items followed a similar pattern. But, overall, we see these results as supportive of our BUY rating even as the stock hit an all-time high yesterday,” said Michael Baker, MD and Senior Research Analyst at D.A. Davidson & Company.

“We believe Walmart takes share in strong environments and also outperforms in tougher economies. The key to the stock today will be comments on trends throughout the quarter as well as early 4Q as the pandemic re-surges,” Baker added.

Despite this optimism, Walmart shares traded nearly flat at $152.30 on Tuesday; the stock is up about 30% so far this year.

Executive Comments

“This was another strong quarter on the top and bottom line. Our associates continue to impress during this challenging year. They are working together to serve customers and communities in new, relevant ways and we’re very proud of them. We think these new customer behaviours will largely persist and we’re well-positioned to serve customers with the value and experience they’re looking for,” Doug McMillon, President and CEO at Walmart.

Walmart Stock Price Forecast

Twenty-six equity analysts forecast the average price in 12 months at $152.19 with a high forecast of $175.00 and a low forecast of $130.00. The average price target represents a 0.07% increase from the last price of $152.09. From those 26 analysts, 21 rated “Buy”, five rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $150 with a high of $240 under a bull-case scenario and $95 under the worst-case scenario. The firm currently has an “Overweight” rating on the multinational retail corporation’s stock. Walmart had its price target raised by Jefferies Financial Group to $170 from $165. Jefferies Financial Group currently has a buy rating on the retailer’s stock.

Several other analysts have also recently commented on the stock. The Goldman Sachs Group reaffirmed a buy rating and set a $144 target price on shares of Walmart. Cowen reissued a buy rating and issued a $155 price objective. Telsey Advisory Group lifted their price objective to $145 from $140 and gave the stock an outperform rating. At last, JP Morgan restated a neutral rating and issued a $137 target price.

As our previous target of $150 has been achieved, we have updated our target to $175 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst Comments

“We expect Walmart to sustain recent momentum in its core business in F’21/F’22 and see a growing ability to balance longer-term investments with near-term returns. Our OW rating and $150 PT are underpinned by a preference for 1) quality players with scale and 2) defensive retailers in the current COVID-19 environment,” said Simeon Gutman, equity analyst at Morgan Stanley.

Upside and Downside Risks

Risks to Upside: 1) Comps accelerate to +MSD-HSD led by continued Grocery strength. 2) Sustainable US e-comm growth of 50-60%+ behind Click & Collect momentum. 3) PhonePe gains wider market appreciation, driving incremental multiple expansion. 4) Walmart+ gains more traction than expected – highlighted by Morgan Stanley.

Risks to Downside: 1) E-commerce loses begin to rise again after briefly moderating. 2) US e-comm growth slows to<30% (comps<2%). 3) Greater than expected Flipkart losses.

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