How Analysts View Wal-Mart After Earnings

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In the same week that Wal-Mart Stores Inc. (NYSE: WMT) reported quarterly results, the retail giant also announced the $3 billion acquisition of e-commerce website By the time the acquisition was announced, it had been on investors’ radar for a few days and had weighed on the stock price. The earnings announcement pushed shares to a new 52-week high on Thursday, but by Friday’s close shares had retreated again.

Wal-Mart posted diluted earnings per share (EPS) of $1.21 on total revenues of $120.85 billion, which includes membership fees in Sam’s Club. Second-quarter results beat Thomson Reuters consensus estimates for EPS of $1.02 and $120.16 billion in revenue. Wal-Mart also raised its full-year EPS estimate from a prior range of $4.00 to $4.30 to a new range of $4.15 to $4.25.

Analyst reactions were nearly uniformly positive, although most adjustments were to price targets only while ratings were left alone.

One exception was S&P Global, which raised its rating from Buy to Strong Buy and lifted its price target from $82 to $88. The firm’s analysts noted:

We see higher wages, inventory improvements and the expansion of online offerings and in-store pick-up services supporting continued favorable U.S. comparable store sales and e-commerce sales trends. We expect sales growth to fuel an acceleration in price cuts.

Commenting on its Hold rating on Wal-Mart stock, the Argus analyst said:

We are optimistic about the company’s new plan to invest more in its staff. Based on the stores we visit, the company has a significant opportunity – and need – to provide better in-store service, have the shelves better stocked, and have faster checkout times. The challenge for management will be to make sure that a better shopping experience translates into attractive returns on incremental investments.

Analysts at Merrill Lynch were less sanguine. The firm rates the stock Neutral, but did lift the price target from $72 to $76:

Near-term investments should limit the earnings benefits of positive US same-store sales and traffic, better merchandising execution globally, and a more integrated e-commerce business. Longer-term global sales and profit growth should return as WMT leverages its significant investments on people, technology and price.

Other analysts’ actions included the following:

  • Baird raised its price target from $75 to $80 and rates the stock Outperform.
  • Deutsche Bank lifted its price target from $77 to $79 with a Hold rating.
  • Jefferies rates the stock a Buy and raised its price target from $85 to $86.
  • RBC raised its price target from $73 to $76 and rates the stock Underperform.
  • Telsey Advisory rates the shares as Market Perform and raised its price target from $71 to $78.

Wal-Mart stock closed at $72.81 on Friday, down 2% for the day. The 52-week range is $56.30 to $75.19, and the 12-month price target is $72.64. The latest ratings may not yet be included in the consensus price target.

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