Sustaining Top-Line Momentum Is Key For Wal-Mart

UBS’ Michael Lasser believes the key for Wal-Mart Stores, Inc. WMT is whether the company is able to sustain its top-line momentum as it further invests in prices and reaps the return on its labor investments.

Lasser maintained a Neutral rating on the company, with a price target of $73.

EPS Expectations

At its AR event in 2015, Wal-Mart indicated it expected to low single digit EPS growth in FY18. However, the analyst believes the company’s expectations would moderate lower at the 2016 event, with Wal-Mart guiding to FY 2019 as the year that EPS inflects higher.

“There are a number of moving pieces that have impacted WMT’s EPS outlook in the last few Qs. Between FX, the Jet acquisition, and store closures, it should see a $0.20 to $0.25 EPS drag,” Lasser mentioned.

Ecommerce

The analyst believes the company needs to lay out a cohesive, long-term vision for ecommerce. Until now, Wal-Mart has focused on integrating its digital and physical, while expanding its breadth of third party sellers.

“Now, it's bringing Jet into the fold, all under the direction of Marc Lore. It'll be key to know how it expects to compete. We think it’s no easy task,” Lasser stated.

If Wal-Mart needs to gain an edge over the competition with pricing, the analyst believes it could be expensive and margin dilutive.

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