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Gauging the Potential Upside in Walmart Stock

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Apr. 8 2019, Published 7:27 a.m. ET

Near-term earnings pressure keeps analysts on the sidelines

Walmart (WMT) has impressed with its comparable sales and earnings growth rates in the past several quarters. However, the majority of analysts continue to suggest “holds” on the stock, reflecting near-term earnings pressure and heightened competitive activity.

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Walmart’s top line growth is expected to be low in fiscal 2020. However, its comparable sales are likely to sustain momentum, which is impressive. Walmart’s expansion of its time- and money-saving offerings, including fast delivery, store pickup, and competitive prices, are expected to support its sales. However, investments in these growth measures are expected to hurt its margins and, in turn, its EPS growth. The year-over-year increase in the company’s effective tax rate and the dilution from its Flipkart acquisition are also likely to pressure its earnings.

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Analysts’ ratings and target prices

A total of 18 analysts suggest “holds” on Walmart stock, and 15 recommend “buys.” Analysts’ target price of $108.41 indicates a potential upside of 9.7% based on its closing price of $98.83 on April 5.

In comparison, analysts suggest “buys” on Costco (COST) stock. However, its target price of $244.50 is almost at par with its April 5 closing price of $245.87.

The majority of analysts suggest “holds” on Target Corporation (TGT) stock. Analysts’ target price of $85.19 indicates a potential upside of 5.3% based on its April 5 closing price of $80.94.

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