Walmart (WMT) has been one of the most searched stocks on Zacks.com lately, so you may want to look at some of the facts that could affect the stock’s performance in the near future.
Shares of this world’s largest retailer have returned +3.8% over the past month versus a change of -1.9% for the Zacks S&P 500 Composite. The Zacks Retail – Supermarkets industry, which includes Walmart, has gained 4.5% during this period. The key question now is: where could the stock go in the near future?
While press releases or rumors about a significant change in a company’s business outlook usually cause the stock to “trend” and result in an immediate price change, there are always some fundamental facts that ultimately determine the buy or hold decision.
Revisions to earnings estimates
Here at Zacks, we prioritize evaluating a company’s change in future earnings forecast above all else. That’s because we believe the present value of its future earnings stream determines the fair value of its stock.
Our analysis is basically based on how sell-side analysts who cover the stock adjust their earnings estimates to take into account the latest business trends. When earnings estimates for a company increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, leading to an increase in its price. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
Walmart is expected to report earnings of $0.53 per share for the current quarter, representing a change of +3.9% from the prior year. Over the past 30 days, the Zacks Consensus Estimate has changed -2.5%.
The consensus estimate for current fiscal year earnings is $2.44, representing a change of +9.9% from last year. This estimate has remained unchanged over the past 30 days.
For the next fiscal year, the consensus estimate of $2.69 represents a change of +10.4% from Walmart’s expected earnings a year ago. Over the last month, the estimate has changed by +0.7%.
With an impressive outside-audited track record, our proprietary stock valuation tool – the Zacks Rank – is a more conclusive indicator of a stock’s near-term price movement because it effectively harnesses the power of earnings estimate revisions. The magnitude of the recent consensus estimate change, along with three other factors related to earnings estimates, have led Walmart to a Zacks Rank #3 (Hold).
The following chart shows the development of the company’s consensus estimate for earnings per share over the next 12 months:
12 months EPS
Sales growth forecast
While a company’s earnings growth is arguably the best indicator of its financial health, not much will happen if it can’t grow its revenue. It’s almost impossible for a company to grow its earnings without growing its revenue over long periods of time, so knowing a company’s potential revenue growth is crucial.
In the case of Walmart, the consensus revenue estimate of $166.71 billion for the current quarter suggests a change of +3.7% from the previous year. The estimates of $677.78 billion and $704.11 billion for the current and next fiscal years suggest changes of +4.6% and +3.9%, respectively.
Latest reported results and surprise history
Walmart reported revenue of $169.34 billion in the last quarter, a change of +4.8% year over year. Earnings per share for the same period is $0.67, compared to $0.61 last year.
Compared to the Zacks Consensus Estimate of $168.5 billion, the reported revenues represented a surprise of +0.49%. The EPS surprise was +3.08%.
Over the last four quarters, Walmart has beaten consensus earnings per share estimates three times. The company has beaten consensus revenue estimates each time during that period.
Evaluation
No investment decision can be efficient without considering the valuation of a stock. Whether the current price of a stock accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key factor in its future price performance.
By comparing a company’s current valuation multiples, such as the price-to-earnings ratio (P/E), the price-to-sales ratio (P/S) and the price-to-cash-flow ratio (P/CF), with its historical values, you can determine whether the stock is fairly valued, overvalued or undervalued. Comparing the company to competitors using these parameters, on the other hand, gives a good idea of how reasonable the share price is.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional value metrics) ranks stocks into five groups from A to F (A is better than B; B is better than C; and so on), making it helpful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.
Walmart gets a C grade on this score, meaning it trades on par with its peers. Click here to see the scores of some of the valuation metrics that led to this grade.
Diploma
The facts discussed here and much more information on Zacks.com could help you decide whether the market hype surrounding Walmart is worth paying attention to. However, its Zacks Rank #3 suggests that the company could perform in line with the broader market in the near future.
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Walmart Inc. (WMT): Free Stock Analysis Report
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