Buy Recently Stalling Walmart (WMT) Stock ahead of Q2 Earnings?

Walmart WMT posted blowout first quarter results, as it flexed its growing e-commerce muscles during the coronavirus pandemic. But WMT shares have lagged the market and its industry over the last three months and have stalled heading into the release of its second quarter fiscal 2021 financial results that are due out before the opening bell on Tuesday, August 18.

The E-Commerce Push & COVID-19

Walmart has rolled out more delivery and pick up options, as it continues to expand its overall digital business. This includes the acquisition of and partnerships with many smaller online-focused retailers—such as one of its more recent moves to team up with secondhand clothing firm ThredUp.

The largest U.S. retailer also recently announced a same-day delivery partnership with Instacart, which helps expand its efforts to compete against Amazon AMZN, as well as peers like Target TGT and Costco COST.

With this in mind, Walmart’s U.S. e-commerce sales jumped 37% in its fiscal 2020 and 40% in FY19. And the coronavirus, which forced large swaths of the economy to stop and ‘non-essential’ businesses to close, helped its U.S. e-commerce sales skyrocket 74% in Q1.

This helped drive 10% comps growth and an 8.6% jump in overall quarterly revenue—its largest climb in over a decade. Walmart’s strong top-line growth did coincide with higher costs associated with the pandemic. Higher wages, benefits, heightened sanitation measures, and more added up to nearly $900 million in incremental costs related to the coronavirus.

WMT also noted that gross margins were negatively impacted by a shift to sales in lower-margin categories. And the company withdrew its fiscal year guidance amid the increased uncertainty.

 

 

 

 

 

 

 

 

 

 

 

Outlook

WMT stock is up 6% in the last three months, against its industry’s 26% climb, and it’s moved sideways over the past month, while the retail space climbed 6%. This might indicate that Wall Street thinks Walmart will have a hard time topping its Q1 results that include the early days of the coronavirus.

With this in mind, our current Zacks estimates call for its adjusted Q2 earnings to slip 4% to $1.22 per share, on 2.8% higher sales. This would come in well below Q1’s revenue growth, which included the three-month period ended on April 30. Therefore, Walmart’s big coronavirus boost is likely already well in the rearview.

Bottom Line

Wall Street is also waiting on the official launch of its new Amazon Prime-style membership called Walmart+ or Plus. The service has reportedly been delayed multiple times and Walmart has spent heavily to deal with increased coronavirus-based costs and demand.

Walmart is a Zacks Rank #4 (Sell) right now that might have to really impress in order to break out of its current range. That said, the chart shows us that WMT shares are up 45% in the last two years, to top its industry. Meanwhile, Walmart’s 1.65% dividend yield comes in just below the S&P 500’s average and it trades at a slight premium to the index.

In the end, investors might want to hold off on Walmart stock until after its report for more clarity on what’s to come. But of course, WMT has a lot going for it in the long run, as it expands its business, which includes a push in India through Flipkart.

And let’s not forget that brick-and-mortar is hardly dead. For instance, e-commerce sales accounted for 11.8% of total U.S. retail sales in the first quarter of 2020, up from 10.5% in the year-ago period.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Target Corporation (TGT) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Walmart Inc. (WMT) : Free Stock Analysis Report
 
Costco Wholesale Corporation (COST) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research