Walmart (WMT) is a good investment option ahead of earnings. Here’s why

Walmart Inc. (NYSE: WMT) is preparing for its earnings announcement after a challenging holiday season. The retail giant has been investing both in store infrastructure and eCommerce capabilities to better align the business with the rapidly changing retail landscape.

After withdrawing from its peak and slipping into a two-year low in mid-2022, Walmart’s shares have recouped most of their lost value. However, the momentum moderated towards the end of the year and the stock mostly traded sideways so far in 2023. The long-term trend in WMT’s performance is reflective of its ability to weather external challenges, thanks to the company’s strong fundamentals and financial health.

A Good Bet

The stock looks poised to make strong gains this year as economic conditions improve and inflationary pressure eases. Though the valuation is not cheap it makes sense to buy the stock, which has always been an investors’ favorite.

---

Read management/analysts’ comments on quarterly reports  

---

The Bentonville-headquartered department store chain thrives on exceptionally strong customer loyalty and competitive prices, a trend that would continue in the near future despite the company losing market share to digital marketplaces like Amazon.com Inc (NASDAQ: AMZN). But the retailer is constantly innovating, with a focus on enhancing its online platform and investing in facilities like curb-side pickup and fulfillment centers. Moreover, the company has maintained healthy cash flows even when the broad industry faced challenges due to economic uncertainties.   

Meanwhile, there are concerns over the stock’s muted performance in the past couple of years, without any meaningful growth. Weak earnings growth and margin performance are the other worries. Also, Walmart’s business is still concentrated in the US market, and its overseas expansion is not significant enough to support growth.

New Fiscal Year

Walmart is all set to publish fourth-quarter financial results on February 21, before regular trading starts. It is widely expected that the recent slowdown would continue in the final months of the year. The consensus forecast is for a modest decline in adjusted profit to $1.51 per share on revenues of $159.55 billion, which represents a 4% increase.

---

Retail: A look at some of the recent trends and near-term expectations of some leading retailers

---

“It’s been my experience over all these years that Walmart is a well-positioned business and is inherently hedged. When times are good, we have room to grow. When things are more difficult, we sell things people want and need at a value and in ways, they want to shop. And with new levers for growth across our flywheel, we’re becoming even stronger and more resilient,” said Walmart’s CEO Doug McMillon at the last earnings call.

Q3 Numbers

In the third quarter, non-GAAP earnings edged up 3% year-over-year to $1.50 per share and surpassed the market’s prediction. Total revenues came in at $152.8 billion, up 9% from the prior year, reflecting sales growth across all geographical divisions and all three operating segments. Continuing the ongoing recovery, US comparable store sales increased by 8.5%.

WMT has been trading above its 52-week average for quite some time. This week, the stock moved above $45 and is gathering strength ahead of next week’s earnings.