Wal-Mart Shares Could Grind Higher If This Happens

Baird has maintained its Outperform rating and $80 target price on Wal-Mart Stores, Inc. WMT as it is encouraged by early signs of progress, thus adding to the defensive appeal of shares amid the tough retail environment.

"[I]nvestments in employees/wages, customer service, merchandising, and digital/omni-channel capabilities appear to be striking a tone with consumers. While absolute valuation metrics appear stretched, relative reads are more in line with historical trends, so we believe shares can grind higher if these positive trends continue," analyst Peter Benedict wrote in a note.

The retail giant's quarterly adjusted EPS of $1.07 beat expectations of $1.02 on stronger U.S. comps and a lower tax rate. Comps of +1.6 percent exceeded 1 percent plan, with traffic (+1.2 percent) the key driver.

Related Link: This Wal-Mart Analyst Will Be Looking For Continued Capital Discipline

Looking ahead, third quarter comps are seen growing 1–1.5 percent, a solid outlook given the struggles across many parts of retail. Further, the acquisition of Jet.com is expected to add additional upside.

The company also raised its FY16 EPS guidance to $4.15–$4.35 (vs. prior $4.00–$4.30). Baird's FY16/FY17 EPS view go up by $0.05 to $4.30/$4.50 to reflect better core trends partially offset by assumed operating losses at Jet.com.

At the time of writing, shares of Wal-Mart were down 1.64 percent at $73.08.

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