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What’s Ahead for Walmart Stock?

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Q4 results unlikely to impress investors

Walmart (WMT) is expected to announce its fourth-quarter results on Tuesday, February 19. Analysts expect Walmart to sustain its sales momentum. However, the projected sales growth rate is likely to remain low. Walmart’s top line is expected to benefit from continued growth in its US business. However, currency volatility, deconsolidation of Brazilian operations, and discontinuation of tobacco sales in certain Sam’s Clubs are likely to limit the sales growth rate to the low single digits.

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Meanwhile, Walmart’s margins could remain weak in the fourth quarter as an adverse mix, higher transportation costs, and price investments are likely to remain a drag. Also, analysts expect Walmart’s adjusted EPS to stay flat in the fourth quarter as benefits from improved sales and the lower effective tax rate are likely to be offset by margin headwinds.

We expect Walmart to continue to grow its sales with its expanded e-commerce offerings. Meanwhile, focus on merchandising and value pricing are expected to drive traffic in the coming quarters. Barring the near-term margin headwinds, Walmart’s profit margins are expected to improve sequentially, as we expect better margins from its e-commerce sales and cost savings.

In comparison, Costco (COST) is expected to outperform both Walmart and Target (TGT) with its sales and EPS growth rate. Analysts expect high-single-digit growth in Costco’s sales and EPS in coming quarters. Meanwhile, Target is also expected to sustain momentum in the coming quarters. However, the rate of growth could decelerate. As for the fourth quarter, Target’s bottom line is expected to mark stellar double-digit growth.

Stock performance

Walmart stock lags the benchmark index in terms of growth on a YTD basis. As of February 8, Walmart stock has risen 2.6% YTD. In comparison, shares of Target and Costco are up 7.2% and 2.0%. Meanwhile, the S&P 500 Index is up 8%. Moreover, the Consumer Staples Select Sector SPDR Fund (XLP) is up 5.9% so far this year.

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