Is Walmart Stock A Buy Right Now As Earnings Report Looms? (2024)

Walmart (WMT) is a retail titan, the world's largest private-sector employer. And for a long time the Dow Jones stock was a huge growth winner for investors. Walmart continues to lock horns with online behemoth Amazon.com (AMZN) and is set to post earnings. So is Walmart stock a good buy right now? Read on.

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Walmart has mammoth revenue. It came in at $572.75 billion in fiscal 2022. However, its size is also a weakness, as sales growth was a tepid 2.4%. Achieving substantial growth is difficult for such a large retail company.

Sam Walton founded the company in 1969, but the discount giant isn't resting on its laurels. E-commerce sales have been surging with a strong performance at Walmart.com, including its online groceries. However, the vast majority of its revenue still comes from its brick-and-mortar stores. Meanwhile, Amazon has a foothold in physical retail through its Whole Foods chain.

Walmart Earnings Due

Walmart is getting set to post earnings early on Nov. 15. Buying a stock ahead of earnings carries extra risk.

Earnings per share are seen falling nearly 10% to $1.31, according to Zacks Investment Research. Revenue is expected to climb nearly 5% to $147.41 billion.

An approach highlighted by Investor's Business Daily is touse options as a strategy to reduce risk around earnings. It's a way to capitalize on the upside potential of a stock's move around earnings, while reducing the downside risk.

Walmart stock was hammered after the firm issued a profit warning on July 25.

It said it expected adjusted earnings per share for the full year to fall 11% to 13%, compared with a forecast in May for a roughly 1% drop.

The company, in revising its forecasts, cited "pricing actions aimed to improve inventory levels at Walmart and Sam's Club in the U.S."

Following the warning, Walmart went on to post EPS of $1.77 a share on August 16. This was above analyst estimates for $1.62 per share. Revenue of $152.9 billion was also above expectations.

Much of that sales gain reflects higher prices, which are responses to rising costs.

Walmart also signaled it's getting a handle on its inventory.

"The actions we've taken to improve inventory levels in the U.S., along with a heavier mix of sales in grocery put pressure on profit margins for Q2 and our outlook for the year," CEO Doug McMillon said in a statement.

Executives told analysts Tuesday that Walmart canceled billions of dollars in orders to help align inventory levels with expected demand. Fewer goods and higher prices resulted in strong revenue as Walmart reported that "mid-to higher-income customers" are flocking to its stores.

It also updated its outlook, saying it now sees full-year adjusted EPS down 9%-11%.For Q3, Walmart expects net sales growth of about 5% along with a 9%-11% decline in adjusted EPS.

Walmart Stock Analysis

Walmart stock now sits in the mid-range of a consolidation pattern. The buy point here is 160.87, MarketSmith analysis shows.

Walmart stock has retaken its 50-day moving average, which is a good sign. WMT stock has also clambered back above the longer-term 200-day moving average.

The relative strength line for Walmart stock is not ideal. It has generally been on the slide since late Nov. 2020. It is remains off its highs for the year despite recent gains. This line gauges a stock's performance vs. the broader S&P 500.

Since the start of the year Walmart stock has fallen by over 4%. This is better than the S&P 500's dip of nearly 18%. But WMT badly lagged the index in 2021.

Longer term, Walmart lagged the S&P 500 throughout the long bull market. In other words, if you had bought the SPDR S&P 500 ETF (SPY) instead of Walmart in 2009, you'd have a bigger gain.

Walmart Stock Fundamentals

In addition to its price performance, fundamentals are also not ideal. This is reflected in the stock's IBD Composite Rating of 70out of a best-possible 99.

The IBD Stock Checkup shows earnings have actually fallen by an average of 4.5% over the past three quarters. This is well short of the 25% growth sought by the CAN SLIM cognoscenti.

The longer term picture is also disappointing for Walmart stock. Over the past three years EPS has grown by an average 10%. Its average revenue growth rate of 4% over this same time period is also not impressive.

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Analysts Positive On Walmart Stock

Jefferies analyst Stephanie Wissink has a buy rating on WMT stock but and a price target of 161. She thinks the firm will focus on customer acquisition before pivoting to retention.

"Q2 made progress on costs & inventory, yet inflation pacing & mix shift persisted in bearing down on margins," she said in a research note. "Encouraging signs of relief on consumers at quarter-end. That said, anecdotes re basket structure & guidance being maintained suggest demand signals might not yet be strong enough to call a significant mix pivot back toward gen merch. Digital & alt value streams continue to develop in the background. We think a bigger, better WMT is still in the making."

CFRA analyst Arun Sundaram rates Walmart stock as a buy with a 154 target.

"Although WMT is currently working through some near-term issues (e.g., excess inventory, cost inflation), we see better days ahead as Walmart continues to build out its high margin 'flywheel' businesses, such as Walmart Connect, which reached $2.1 billion in FY 21," he said in a Aug. 27 research note. "Walmart's business model is evolving, which, along with accelerated investments in e- commerce, technology, and automation, will position the company to deliver stronger and more sustainable earnings growth over the long term, in our opinion."

Walmart+ Ready For Amazon Prime Time

Walmart did a better job handling the post Covid-19 retail landscape than department stores such as Macy's (M). In fact, Walmart's U.S. e-commerce growth has been much faster than Amazon's retail sales growth. It is growing from a much lower base, however.

The Walmart vs. Amazon battle for retail supremacy is raging along multiple fronts, and is blurring the lines between online and offline. Walmart, Target (TGT), Costco (COST) and a few other retail giants are adopting a hybrid model to take on Amazon, leveraging their brick-and-mortar stores in conjunction with digital shopping.

Walmart moved to rope in more customers by rolling out its Walmart+ membership program last year.

"Walmart's Walmart+ program will help retain new customers that it has gained as a result of Covid-19, as well as deepen relationships with long-standing customers, and as such is a positive for the company," Moody's analyst Charlie O'Shea told IBD.

Walmart+ costs $12.95 a month, or $98 a year. The program's benefits can be used, in one way or another, at more than 4,700 stores. The service will offer free delivery on items, at in-store prices, with 2,700 stores capable of offering same-day delivery.

By comparison, Amazon Prime costs subscribers $119 for a year, but offers perks such as Amazon Prime Video. If members want to be charged monthly, the cost is $12.99.

The debut of Walmart+ marks the chain's latest effort to become more of an e-commerce company, as the growth of online shopping remolds customers' habits — a trend that was accelerated by the coronavirus pandemic.

Walmart also teamed up with e-commerce software giant Shopify (SHOP) to help third-party sellers on its marketplace, another venue to take on Amazon.

Is Walmart Stock A Buy?

Walmart stock has not been a long-term stock market leader for many years. It badly lagged the S&P 500 in 2021 but is outperforming in 2022.

But Walmart earnings growth fails to meet the 25% benchmark sought by CAN SLIM connoisseurs. Investors keen on the stock could add it to their watchlist but may get better returns by focusing on companies with superior earnings and strong stock performance, such as those on theprestigious IBD 50 list.

Bottom line: Walmart stock is not a good buy right now. The stock remains well below its latest buy point and is well off highs for the year. Its latest earnings report is also around the corner, which adds risk. In addition, Walmart stock is unlikely to be a huge winner due to its fundamentals, which are not outstanding.

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