What The Street Is Saying About Wal-Mart's Pay Boost

Retail giant Wal-Mart Stores, Inc. WMT made headlines on the evening of February 19th after the company announced it will give a pay raise to roughly half of its employees. The announcement was revealed after the company posted its fourth quarter 2014 earnings report the same evening.

Highlights from the report include adjusted earnings of $1.61 per share, beating analysts’ estimates of $1.54 and increasing by $0.01 from the same quarter a year prior. The company posted revenue of $131.6 billion, marking a 1.4 percent increase year-over-year. Wal-Mart claims the “Currency exchange rate fluctuations negatively impacted revenue by approximately $2.6 billion.”

Wal-Mart CEO Doug McMillon said of the report, “We had a good fourth quarter to close out our fiscal year, with underlying EPS of $1.61. Walmart U.S. delivered better than expected comp sales…Like many other global companies, we faced significant headwinds from currency exchange rate fluctuations, so I’m pleased that we delivered fiscal year revenue of $486 billion. But, we’re not satisfied.”

In an effort to improve, Wal-Mart “announced a bold new initiative on pay and training for U.S. associates.” Starting in April, the company will increase the pay of 500,000 full-time and part-time U.S employees to $9.00 an hour. By February 2016, Wal-Mart plans to increase wages to $10.00 an hour.

McMillon stated, “These changes will give our U.S. associates the opportunity to earn higher pay and advance in their careers. We’re pursuing a comprehensive approach that is sustainable over the long term…By realigning our store operational structure, associates can enjoy a closer relationship with their supervisors. In addition, associates will have more control over their schedules. The investment in these initiatives is more than $1 billion for this fiscal year.”

Wal-Mart hopes that the increase in pay will result in better customer service, better employee attitudes, and reduce its turn-over rates.

Wall Street had fairly mixed reactions to Wal-Mart’s news.

On February 20, Nomura analyst Robert Drbul maintained a Buy rating on Wal-Mart and kept his price target at $95, noting “This investment is quite logical and long overdue.”

Robert Drbul has rated Wal-Mart 5 times since February 2011, earning an 80 percent success rate recommending the stock and a +11.4 percent average return per recommendation. Overall, Drbul has a 75 percent success rate recommending stocks and a +15.4 percent average return per recommendation.

On the other hand, Deutsche Bank analyst Greg Poole maintained his Hold rating on the retail giant and cut his price target from $86 to $82 on February 20. He reasoned: “2015 investments in labor and e-commerce are much heavier than expected. With no earnings growth on the horizon, we remain sidelined.”
Greg Poole has only ever issued Neutral ratings for Wal-Mart. Overall, he has a 65 percent success rate recommending stocks and a +9.3 percent average return per recommendation.

Similarly on February 20, Stifel Nicholaus analyst David Schick reiterated his Hold rating on Wal-Mart with no price target. He explained: “We applaud WMT’s move… In the near term this raises uncertainty. What if comps slow? What would deleverage look like? What if it doesn’t work? Uncertainty and lower EPS output tends to make stocks fall.”

David Schick has rated Wal-Mart nine times since December 2009, earning a 33 percent success rate recommending the company and a -0.1 percent loss per recommendation. Overall, Schick has a 58 percent success rate recommending stocks and a +5.2 percent average return per recommendation.

On average, the top analyst consensus for Wal-Mart on TipRanks is Hold.