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Wal-Mart's Q2 Could Be A Repeat Of Q1

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Wal-Mart's Q2 Could Be A Repeat Of Q1

Deutsche Bank Securities said it believes traffic momentum and merchandise mix benefits seen by Wal-Mart Stores, Inc. (NYSE: WMT) in the first quarter continued into the second quarter. Accordingly, the firm upped its price target and earnings per share estimate for the retailer.

Consistent Performer

The firm's analyst Paul Trussell noted that Wal-Mart U.S., accounting for roughly 75 percent of EBIT, has been reporting six straight quarters of positive traffic and seven straight quarters of positive comps notwithstanding falling ticket. The firm has also been consistently scoring well on customer satisfaction metrics, according to the analyst.

Deutsche Bank sees inventory reduction and omnichannel services aimed at boosting traffic as positives. The analyst touts grocery as providing long-term growth opportunity, although grocery inventory management is seen as a challenge. The firm also sees benefit from the move away from dining out trend. Meanwhile, Deutsche Bank highlighted the threat offered by hard discounters.

Related Link: Deutsche Goes Shopping For Discount Retailer Stocks

Targets

Deutsche Bank raised its second-quarter earnings-per-share estimate for the company by 3 cents to $1.05 compared to the Street's $1.02, reflecting beefed up margin forecast. Notwithstanding a 1 percent increase expected in U.S. comps., the firm expects flat revenues.

Hurt by forex headwinds, the firm expects international revenues to be down 7.8 percent. Despite the improvement expected in gross margins, the firm sees a 78 basis point decline in EBIT margin to 5.7 percent, given the investment in labor.

The firm noted that its fiscal year 2017 earnings-per-share estimate is well above the Street estimate of $4.41.

Deutsche Bank has a Hold rating on the shares of Wal-Mart, but lifted its price target to $77 from $68, indicating a roughly 5 percent upside from current levels. The valuation is based on 14.5 times three-year average, premised on favorable low-end consumer environment, positive momentum in U.S. business and the defensive nature relative to other multinational consumer companies.

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Latest Ratings for WMT

DateFirmActionFromTo
Feb 2021Morgan StanleyMaintainsOverweight
Feb 2021Morgan StanleyMaintainsOverweight
Feb 2021Raymond JamesMaintainsOutperform

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