Walmart Positioned for Solid Earnings: Credit Suisse Analyst Boosts Estimates

Credit Suisse analyst Karen Short maintained Walmart Inc WMT with an Outperform and raised the price target from $170 to $180.

WMT will report its CY2Q23 earnings on August 17 before the market opens. 

Short raised her 2Q EPS forecast by $0.06 to $1.74 vs. the FactSet consensus at $1.69 and guidance of $1.63-$1.68. 

The analyst believes WMT remains well positioned for the current environment, as it continues to exhibit solid defensive characteristics, given its value-driven consumables-oriented business in the wake of a volatile consumer backdrop and slowing but elevated inflationary headwinds on the consumer. 

Short raised her WMT U.S. comp ex. fuel estimate to 6.0% from 3.8% (FactSet at 4.0%), as believe WMT should have continued its robust sales momentum. 

The upward revision reflected strength in grocery sales, continued transaction gains, growth in private labels, an estimated MSD inflation, and substantial increases in health and wellness sales. 

These tailwinds should be partially offset by continued softness in general merchandise, except for apparel, a category WMT continues to make headway – both in stores and online. 

As a reminder, WMT’s 2Q guidance looks for CC sales growth of ~4.0% across the enterprise. From a profitability standpoint, WMT should have benefited from lapping excess markdowns from last year, supply chain productivity initiatives, and business mix, which should start to contribute in 2Q and ramp up in the second half. 

Meanwhile, given the underperformance of general merchandise, the product mix should have remained a headwind. 

WMT should have also benefited from accelerated signups to its membership program, Walmart+, due to its 50% discount during its Walmart+ Week (July 6-13). 

Short modeled EBIT growth of ~4% Y/Y to $5.9 billion vs. up ~1% previously. 

The analyst raised her estimates for the second half – bringing her CY23 EPS estimate to $6.36 from $6.21 and CY24 EPS to $6.85 from $6.69. 

Price Action: WMT shares traded higher by 0.84% at $161.60 on the last check Friday.

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