BJ - A weak forecast has sent Walmart lower in recent weeks. Has it become a buy?

2023-03-10 10:35:33 ET

Shares of Walmart ( NYSE: WMT ) have stumbled since the retailer's latest earnings report, as investors have had trouble shaking off concerns about the firm's cautious forecast. However, the stock still has fans in the Wall Street community, who see long-term value, even with the current economic uncertainty.

Does the recent earnings-inspired pullback create an opportunity to buy one of the biggest players in the retailing sector?

Recent Earnings

Walmart ( WMT ) currently trades lower on the year by 3% and has felt selling pressure since the release of its quarterly results in late February. The firm topped estimates with its holiday quarter earnings , but it set cautious guidance for the year ahead.

Specifically, WMT delivered Q4 Non-GAAP EPS of $1.71, which beat estimates by $0.20. At the same time, it posted revenue of $164.05B, which outdid estimates by $5.38B.

Looking ahead, the company predicted net sales growth of 2.5% to 3.0% in constant currency. Meanwhile, the firm issued a full-year earnings forecast of $5.90-$6.05 per share, below the $6.51 per share that analysts were predicting.

Since providing that quarterly update, shares of the retailer have dropped roughly 5% and the stock recently touched levels not seen since November.

Bigger picture, the stock is up 13% over the past nine months but trades lower on a one-year time frame by 1%. For reference the S&P 500 ( SP500 ) is lower by 4.4% on a one-year time horizon.

Is WMT a Buy?

Even with the cautious forecast, the Wall Street community remains bullish on Walmart's ( WMT ) long-term prospects. According to Seeking Alpha data , 19 out of the 41 analysts surveyed classify the stock as a Strong Buy. Meanwhile, another 10 view the company as a Buy, meaning 70% of analysts have a bullish stance. The remaining 12 analysts see WMT as a Hold.

Currently, WMT trades around $138 per share. This compares to an average price target of $160.89. Meanwhile, the high-end target sits at $180 and the low-end target is $144.

Seeking Alpha's Quant Rating system has a more conservative view of the stock, tagging Walmart ( WMT ) with a Hold rating. It provided a factor grade of an A+ for the company's profitability, as well as giving the shares a B for momentum. However, these bullish signals were counteracted by a D and D- for the stock’s valuation and growth.

Here's a breakdown of the data above:

What Others Say

Seeking Alpha contributor ANG Traders has taken a contrarian view of Walmart ( WMT ), designating the stock as a Sell . The firm stated: "Walmart has seen aggressive insider selling that appears to be accelerating this year." ANG traders went on to add: "WMT also has seen declining store numbers both in the US and internationally."

On the other side of the argument, fellow SA contributor Brian Gilmartin views the stock as a Buy . Gilmartin said: “Walmart Inc. inventory-to-sales ratio had the best quarter of the last 8 - returning to normal.” Gilmartin added: “Walmart is now in a position in 2023 to fix the externally generated issues from Covid, supply chains issues, etc.”

Other Approaches

For investors that are unsure about Walmart specifically but still want exposure to the retailing giant, exchange traded funds represent an alternative investment vehicle. Currently, Walmart is held by 254 different funds. See below the top five weighted allocations towards the retailer:

• QRAFT AI-Enhanced U.S. Large Cap Momentum ETF ( AMOM ) has a 7.83% holding.
• iShares U.S. Consumer Focused ETF ( IEDI ) has a 7.47% holding.
• Fidelity MSCI Consumer Staples Index ETF ( FSTA ) has a 7.43% holding.
• Vanguard Consumer Staples ETF ( VDC ) has a 7.31% holding.
• VanEck Retail ETF ( RTH ) has a 6.38% holding.

Aside from the ETF front other potential options of investment outside of Walmart includes some of its competitors such as Costco Wholesale Corporation ( COST ), BJ's Wholesale Club ( BJ ) and Target ( TGT ).

In related Walmart news, CEO Doug McMillon plans to keep his place atop the Arkansas-based retail giant for at least 3 more years.

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