Market Overview

These Two Wal-Mart Analysts Are Not Impressed By Q3 Improvements

These Two Wal-Mart Analysts Are Not Impressed By Q3 Improvements

  • The market had a moderately positive initial reaction to Wal-Mart Stores, Inc. (NYSE: WMT)’s Q3 earnings beat.
  • However, analysts at Deutsche Bank and Barclays are not convinced that the company’s recent investments will result in meaningful growth.
  • Wal-Mart’s stock remains down more than 29 percent in 2015.
  • Wal-Mart’s stock is up over 1.1 percent in Wednesday’s session after the company reported a Q3 earnings beat on Tuesday. However, with the stock down more than 29 percent so far in 2015, shareholders are looking for a bit more than a modest earnings beat. Here’s a look at what Deutsche Bank and Barclays had to say about Wal-Mart’s earnings and what shareholders can expect in coming quarters.

    The Numbers

    Wal-Mart reported Q3 earnings of $1.03/share, slightly above consensus expectations of $0.98. However, earnings fell short of Q3 2014’s EPS of $1.15.

    Related Link: Wal-Mart Q3 Profit Beats Views, Shares Rise

    Return On Customer Service Initiatives Unclear

    Wal-Mart management reported that customers are starting to notice improvements in stocking, cleanliness, service and check-out speeds. However, Barclays analyst Meredith Adler doesn’t see how these improvements in customer experience will meaningfully impact Wal-Mart’s bottom line.

    “These improvements are coming at a big cost in terms of labor investments, with the higher costs likely to continue at least into FY17, with little visibility into a potential acceleration in sales,” she explained.

    Adler remains cautious on a potential Wal-Mart turnaround story. Barclays maintains its Equal-Weight rating on Wal-Mart, but raised its price target to $61.

    Deutsche Bank Agrees

    Deutsche Bank analyst Paul Trussell agrees that Wal-Mart’s labor initiatives will likely not result in sales growth. “We see elevated labor investments as mostly catch-up/market-based and not necessarily a driver of meaningful returns ahead,” he wrote in a new report.

    Deutsche Bank has a Hold rating on Walmart and a $63 target for the stock.

    Disclosure: The author holds no position in the stocks mentioned.

    Image Credit: "Walmart store exterior 5266815680" by Walmart Corporate from Bentonville, USA - Walmart store exterior. Licensed under CC BY 2.0 via Wikimedia Commons.

    Latest Ratings for WMT

    Aug 2019MaintainsOutperform
    Aug 2019MaintainsOverweight
    Jul 2019Initiates Coverage OnBuy

    View More Analyst Ratings for WMT
    View the Latest Analyst Ratings

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