Home Depot and Target’s latest earnings give investors another reason to look forward to Walmart’s report. But investors who expected Walmart’s stock to soar in the same way as Target’s stock after the retailer’s earnings should temper their enthusiasm.
The biggest takeaway is that retailers still have some levers to pull to navigate a difficult environment, and consumers are still hanging on, said John Tomlinson, global research director at MScience. To tell. That bodes well for Walmart, which will report its third-quarter results Thursday morning.
Analysts expect Walmart’s sales for the quarter to rise 4.4% from a year ago to $159.7 billion. Analysts expect same-store sales, which measures sales growth at stores open for more than a year, to rise 3.7%.
Adjusted earnings are expected to be $1.52 per share, up from $1.50 per share in the year-ago period.
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The company is well-positioned to meet or slightly exceed these expectations.
“We think WMT is the best company in a volatile consumer market and expect a solid beat from Walmart,” Evercore ISI analyst Greg Merrick said in a note last week. said.
However, don’t go into Thursday like Target, expecting the stock price to rise after earnings. One of the reasons Target stock rose so much is that expectations were very low heading into the report. That’s not the case with Walmart.
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The company has outperformed Target and Home Depot in recent quarters, and its stock price reflects that. According to FactSet, Walmart stock has a forward P/E ratio of 24 times, compared to 13 times for Target stock and 19.6 times for Home Depot stock.
Oppenheimer analyst Rupesh Parikh said in a note to clients that the premium valuation is justified given that the company is likely to continue gaining market share. But with high expectations, he added, there is “limited margin for error” when the company reports earnings.
A better comparison may be the market reaction after TJX Inc. (TJX) reported its earnings on Wednesday. Unlike Target and Home Depot, TJX has seen significant increases in foot traffic and sales as consumers have become more price-conscious and value-seeking. TJX also exceeded profit expectations.
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However, the stock fell on Wednesday as expectations were high heading into the report and the fourth quarter outlook was not strong enough for the market.
Walmart faces similarly high hurdles. That’s because, like TJX, the company has benefited from the macroeconomic environment and subsequent changes in consumer behavior.
“Unless there’s a product that really beats expectations in terms of profitability, I think the reaction will be much more muted than Target,” Tomlinson said.
Email Sabrina Escobar at sabrina.escobar@barrons.com.