While it may not be a trendy technology stock, one name has quietly outperformed most of the Magnificent 7 stocks this year. We’re talking about retail giant Walmart (NYSE:WMT)whose shares have risen 31% since the beginning of the year. With the release of Q2 results on Thursday, investors could be looking forward to even more good news.
At least that is the opinion of analyst Krisztina Katai from Deutsche Bank, who is optimistic about the future even before the figures are published.
“We believe WMT’s Q2 results will show the company standing out from the rest of retail with continued momentum – albeit somewhat muted – against the backdrop of a weakening consumer environment,” Katai explained. “In addition, we believe the upcoming results will demonstrate the resilience of the model – and the many levers it has at its disposal to execute on its targeted algorithm – as opposed to meaningful earnings growth (e.g. the strong EBIT$ result in Q1).”
Nevertheless, Katai believes that operating profit “grew faster than sales” due to alternative revenue sources, “lean inventories” and a stronger contribution from e-commerce.
This is due to a combination of factors, including continued momentum from Walmart+, with a Deutsche Bank survey pointing to “record penetration” in the second quarter, fueled by increasing use of Walmart+ Assist. In addition, investments in supplier pricing, the launch of new private-label products such as bettergoods, the relaunch of No Boundaries and an increased focus on key holiday periods such as back-to-school contributed to Walmart’s strong performance.
Katai also expects management will likely raise full-year earnings guidance to the high end of the range ($2.23 to $2.37), highlighting “stable underlying” same-store sales trends. However, Katai believes the company may also adopt a more cautious outlook for the second half due to potential election-related turbulence, an unfavorable calendar and “continued general weakness in the merchandise business.”
“The bottom line,” the analyst concluded, “is that we remain confident in the near-term and long-term prospects and see an opportunity for earnings per share growth as WMT remains relatively early in its retail transformation.”
Given this assessment, it’s no surprise that Katai recommends WMT stock as a Buy, while her $77 price target leaves room for further gains of 13% in the coming months. (To watch Katai’s track record, click here)
Most analysts on Wall Street share this positive view. With 27 buy recommendations and 3 hold recommendations, the consensus rating for Walmart is “Strong Buy.” The average price target of $74.11 implies an upside potential of ~9% from current levels. (See Walmart Stock Forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important that you conduct your own analysis before investing.
