Wall Street expects a year-over-year increase in earnings on higher sales when Walmart (WMT) reports results for the quarter ending July 2024. While this widely-known consensus forecast is important in gauging the company’s earnings position, an important factor that could affect the stock price in the near term is how actual results compare to these estimates.
The earnings report, which is expected to be released on August 15, 2024, could help the stock to rise if these key numbers come in better than expected. Conversely, if they do not meet expectations, the stock could decline.
While the sustainability of the immediate price change and future earnings expectations will largely depend on management’s discussion of business conditions during the earnings call, it is worth assessing the likelihood of a positive EPS surprise.
Zacks Consensus Estimate
This world’s largest retailer is expected to report quarterly earnings of $0.65 per share in its upcoming report, representing a year-over-year change of +6.6%.
Revenue is expected to reach $168.4 billion, an increase of 4.2% over the same quarter last year.
Trend of estimate revisions
The consensus earnings per share estimate for the quarter has been revised upward by 0.01% over the past 30 days to sit at current levels, essentially reflecting how analysts have collectively revised their original estimates during this period.
Investors should keep in mind that the direction of individual analysts’ estimate revisions may not be reflected in the overall change.
Whispers of results
Estimate revisions prior to earnings releases provide insight into business conditions for the period in which earnings are released. Our proprietary surprise prediction model – the Zacks Earnings ESP (Expected Surprise Prediction) – is based on these insights.
The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a more recent version of the Zacks Consensus Estimate for earnings per share. The idea is that analysts who revise their estimates just before earnings are released have the latest information, which may be more accurate than what they and others contributing to the consensus had previously predicted.
A positive or negative Earnings ESP value theoretically indicates the likely deviation of actual earnings from the consensus estimate. However, the predictive power of the model is only significant for positive ESP values.
A positive Earnings ESP is a strong indicator of earnings beats, especially when combined with a Zacks Rank of 1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks with this combination deliver a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of the Earnings ESP.
Please note that a negative Earnings ESP is not an indication of an earnings miss. Our research shows that it is difficult to predict with any degree of confidence an earnings beat for stocks with negative Earnings ESP values and/or a Zacks Rank of 4 (Sell) or 5 (Strong Sell).
How have the numbers developed for Walmart?
For Walmart, the Most Accurate Estimate is below the Zacks Consensus Estimate, suggesting that analysts have recently become more pessimistic about the company’s earnings prospects. This has resulted in an Earnings ESP of -0.93%.
On the other hand, the stock currently has a Zacks Rank of #2.
Because of this combination, it is difficult to conclusively predict whether Walmart will beat the consensus earnings per share estimate.
Do past earnings surprises provide any insight?
Analysts often take into account the extent to which a company has been able to meet consensus estimates in the past when calculating their estimates for future earnings, so it is worth taking a look at the history of surprises to estimate their impact on upcoming numbers.
For the last reported quarter, Walmart was expected to report earnings of $0.52 per share. However, the actual earnings were $0.60, which represents a surprise of +15.38%.
Over the past four quarters, the company has beaten consensus earnings per share estimates three times.
Conclusion
An above- or below-average earnings forecast is not necessarily the only reason a stock’s price rises or falls. Many stocks lose ground despite above-average earnings forecasts because other factors disappoint investors. Likewise, unforeseen catalysts contribute to many stocks gaining despite below-average earnings forecasts.
However, betting on stocks that beat earnings expectations increases the odds of success. That’s why it’s worth checking a company’s Earnings ESP and Zacks Rank before quarterly earnings are released. Be sure to use our Earnings ESP filter to find the best stocks to buy or sell before they’re released.
Walmart doesn’t seem like a compelling candidate for an earnings boost, but investors should also pay attention to other factors when betting on this stock or staying away from it ahead of its earnings release.
Stay up-to-date on upcoming earnings announcements with the Zacks Earnings Calendar.
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