Walmart shares moved higher in early Monday trading as a Wall Street analyst made a key investment call ahead of the retail giant's second quarter earnings report this week.
Walmart (WMT) , which boasts a year-to-date advance similar to stocks in the Magnificent 7 tech group, has added more than $120 billion in market value as it continues to capture an increasing share of spending from price-focused consumers battling stubborn inflation.
Related: Analysts revise Target stock price goal before earnings
Recent updates from online retail giant Amazon (AMZN) as well as muted outlooks from brand groups such as Procter & Gamble (PG) and consumer discretionary names like PepsiCo (PEP) suggest consumer headwinds are stiffening into the autumn months.
Amazon's finance chief, Brian Olsavsky, told investors earlier this month that consumers were "being careful with their spend, trading down (and) looking for deals" over the second quarter. He added that "we're seeing signs of it continuing in Q3."
Retail sales have been holding up well, however: The Commerce Department pegged them at a total of $704.3 billion for June, a tally that topped Wall Street forecasts.
Image source: Tim Boyle/Getty Images
Amazon's Prime Day sales, meanwhile, hit a record $14.2 billion for the 48-hour period last month, according to data from Adobe Analytics, an 11% improvement from the year-earlier tally.
Consumers seen pulling back on spending
That said, with unemployment starting to edge higher and the job market picture clouding into the coming months, analysts expect a pullback in consumer spending, which in turn is likely to lead to a broader economic slowdown.
Evercore ISI analyst Greg Melich, however, sees Walmart "reaffirming its status as a relative safe haven amidst a volatile consumer backdrop" when it reports fiscal-Q2 earnings Thursday. He expects the Bentonville, Ark., group to reiterate its outlook for full-year sales and profit.
Analysts expect Walmart to post overall sales of $168.5 billion for the three months ended in July, a 4.3% increase from the year-earlier period, with earnings rising 6.6% to 65 cents a share.
Related: Wall Street banks ring recession alarm
Earlier this spring, Walmart estimated earnings would come in at the higher end of, or slightly above, its standing forecast of $2.23 to $2.37 a share, with net sales rising between 3% and 4% from year-earlier levels.
Walmart also appears to be gaining market share from higher-income consumers, particularly in its grocery category, which helps stabilize the stock as its broader slate of initiatives, including its e-commerce strategy, keeps shoppers in the Walmart ecosystem.
"While management is pleased with unit share gains within general merchandise, it sees additional opportunity ahead to gain share, aided by Marketplace and in-store improvements," said KeyBanc Capital Markets analyst Bradley Thomas following a visit with Walmart executives in Bentonville last month.
Tactical call on Walmart stock
"More specifically, store remodels lay the groundwork for the company to offer a better assortment across general merchandise (and in apparel and home, most specifically)," said Thomas, who carries an 'overweight' rating and $82 price target on Walmart.
Evercore's Melich expects an in-line quarter for the group, while issuing a "positive tactical call" on the stock heading into the Thursday report.
Related: Walmart beats Costco and Target in key area consumers demand
"Risks to the call include potential for moderating demand trends after [the quarter-end, which] could cause Walmart to take a more conservative outlook on [the second half]; the risk of ongoing wage inflation, tech investment, and remodel spend, which could result in elevated [selling, general and administrative expense], increased ocean freight costs, and/or competition," Melich said.
More Retail Stocks:
- Analysts reboot Amazon stock price targets after earnings
- Costco makes an unpopular policy change (maybe for a good reason)
- Amazon CEO warns of trend that’s making consumers flee pharmacies
"If Walmart misses 2Q and/or lowers its [second-half earnings-per-share] outlook ... the stock could fall by a mid- to high-single-digit percentage as execution slipups could challenge its safe-haven status," said Melich. The analyst reiterated his $74 price target and 'outperform' rating for the group.
Walmart shares were last marked 1.6% higher in early Monday trading and changing hands at $69.03 each, a move that extends their 2024 gain to around 30%.
Related: Veteran fund manager sees world of pain coming for stocks
