Walmart Inc. is scheduled to report fiscal first-quarter earnings on Tuesday before the opening bell, and Cowen says there’s a good chance that rival Target Corp. got a bigger boost from recent government stimulus spending.
To be sure, Cowen analysts raised its own estimates for Walmart WMT, +0.93% and expects the checks paid to Americans by the government to be a tailwind for the retail giant.
But Cowen says Target TGT, +1.22% is “better positioned” for the near-term due to its wide range of merchandise.
“Target likely saw a bigger lift from stimulus than Walmart given its more discretionary bent,” analysts led by Oliver Chen wrote.
“Target operates a more diversified category portfolio with a higher mix of discretionary categories as grocery is 20% of mix vs. 57% at Walmart. Category mix should yield more robust comps at Target as the economy continues to re-open.”
Cowen rates Walmart stock outperform with a $179 price target, and rates Target stock outperform with a $230 price target.
Target is scheduled to report its first-quarter earnings on Wednesday before the opening bell.
JPMorgan analysts agree that Walmart’s grocery reliance could pose a challenge compared with a different competitor, Amazon.com Inc. AMZN, +1.94%
“[W]e find the valuation full and believe that the hardest part is ahead with its high share in the hyper-competitive grocery market (25% share) and low share in general merchandise (~6%) where Amazon dominates online,” JPMorgan wrote.
“COVID-19 should only accelerate curbside and delivery investments from its grocery peers while the CPG [consumer packaged goods] category likely just experienced an inflection online.”
JPMorgan rates Walmart stock neutral with a price target of $148.
Walmart has an average overweight stock rating and average price target of $158.08, according to 35 analysts polled by FactSet.
Here are other items to watch for when Walmart reports its quarterly results:
Earnings: The FactSet consensus is for earnings per share of $1.21, up from $1.18 last year.
Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, expects EPS of $1.28.
Walmart missed the last FactSet EPS forecast, but beat the three times prior to that.
Revenue: The FactSet consensus is for revenue of $132.16 billion, down from $134.62 billion last year.
Estimize expects revenue of $134.44 billion.
Walmart has beaten the FactSet consensus the last four quarters, but missed the two before that.
Stock price: Walmart stock has tumbled 3.2% for the year to date while the Dow Jones Industrial Average DJIA, +1.06% is up 12.3% for the period.
-Walmart+ membership slowed. Cowen published details from its Walmart+ Deep Dive surveys, which suggests that membership declined to 11.1 million in March from 13.0 million in February.
Cowen analysts outline a number possible reasons, including U.S. reopening and efforts to control demand through marketing.
“Our take is that growth in Walmart memberships is important for the retailer to increase customer stickiness and share of wallet. This will ultimately drive greater long-term customer lifetime value and expand its flywheel and ecosystem opportunity,” analysts said.
-Walmart’s “every day low prices” will be an asset during this inflationary period. “A combo of a more normalized food-at-home / food-away-from-home split and a return to food inflation should help to reinforce Walmart’s strong position on value,” UBS analysts wrote in a note.
“We see it being especially well-positioned to capture share from less differentiated traditional retailers, which saw a disproportionate amount of stock up trips as customers stocked up at stores that had the widest consumables selections (and were less concerned with price).”
UBS rates Walmart stock buy with a $160 price target.
-Walmart and Target continue to thrive even as consumer behavior changes… again. Placer.ai foot traffic data shows that Walmart and Target continue to draw customers as the economy reopens, even if the way consumers are shopping is changing.
“Early in the pandemic, both brands benefitted from the rise in ‘mission-driven shopping’, a trend that pushed shoppers to spend more time in fewer locations,” wrote Ethan Chernofsky, Placer’s vice president of marketing, wrote in a recent blog post.
“The result was an increased visit duration that drove larger basket sizes and privileged the type of one-stop-shop experience that Walmart and Target were built to satisfy. Yet, as visit duration declined back to normal, the two brands are simply seeing the behavior shift with visitors making more, albeit shorter, visits to compensate.”