Walmart Has Multiple Ways to Win This Earnings Season - Barron's

With its huge network of essential stores and enhanced digital sales platform, Walmart has been a winner in retail this year. Expect more good news when the company reports its fiscal second quarter earnings later this month, says UBS.

Analyst Michael Lasser reiterated a Buy rating and $135 price target on Walmart (WMT) Tuesday, as he believes that the company has “put together a solid set of results against a Covid-impacted backdrop.”

He notes that when Walmart reported a robust first quarter in May, the company said its second quarter had gotten off to a strong start, and he believes that trend likely held in recent months. He’s predicting same-store sales growth of 6%, ahead of the 5.5% consensus estimate. Lasser argues that consumers’ ongoing focus on food and home goods play squarely into Walmart’s strengths, and the retailer’s focus on value is another positive, as some peers have pulled back on promotions.

He thinks e-commerce remained robust in the second quarter, even as some areas saw easing lockdown restrictions, and he’s modeling for a 55% rise in digital sales. “While Walmart might not have seen the burst of discretionary spend that some other retailers have witnessed, we think its durability will be on display. This stability, coupled with upside from its initiatives (digital, advertising, health care, etc) create a favorable risk-reward.”

That said, Walmart, like all retailers, is facing higher costs related to the pandemic, and Lasser expects gross margins will contract by 10 basis points in the quarter. Still, a pickup in discretionary spending could help a bit, as should the company’s focus on controlling expenses.

Lasser doesn’t expect the company to issue guidance, but he thinks investors could potentially get some insight during the report from management about projects like its rumored online subscription model, Walmart+. “With the stock rising about 8% the day the media reported on potential enhancements to its program, the market is clearly hungry for it to show what muscles it can flex here. Beyond that, Walmart is likely to exhibit confidence in continued strength in grocery and digital, which should set it up well in the second half.”

He isn’t alone among analysts touting Walmart’s advantages, especially as it has a chance to hang onto new customers it gained during the pandemic. The shares are up nearly 10% year to date, as investors have cheered its rising online sales, growing grocery segment, and increasing willingness to take on Amazon.com (AMZN).

Shares are rising 0.9% to $130.44 in recent trading.

Write to Teresa Rivas at teresa.rivas@barrons.com

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