Why Walmart (WMT) Stock Looks Like a Buy Ahead of Q2 Earnings

We are already well over halfway through Q2 earnings season, with many of the biggest names in technology looking ahead the second half of the year. But Wall Street still eagerly awaits reports from some retail giants and economic bellwethers. One such firm is Walmart WMT, which looks strong heading into the release of its Q2 fiscal 2020 financial results that are due out before the opening bell on Thursday, August 15.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Quick Q2 Earnings Overview

The second quarter has been a mixed bag, especially for the so-called FAANG stocks. Facebook FB reported better-than-projected results as its user growth remained strong.” data-reactid=”12″>Quick Q2 Earnings Overview

The second quarter has been a mixed bag, especially for the so-called FAANG stocks. Facebook FB reported better-than-projected results as its user growth remained strong.

Apple AAPL posted stronger results than it has the past two quarters, and Google parent Alphabet GOOGL topped estimates and announced a massive buyback program.

Netflix NFLX, however, fell well short of user estimates. And Amazon AMZN stock has fallen heavily over the last week-plus.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The Walmart Pitch ” data-reactid=”25″>The Walmart Pitch

Walmart shares have slipped along with the broader market since the end of July, but its e-commerce rival has suffered a far worse decline. In fact, and this might come as a shock to those who haven’t paid close attention, WMT stock is up roughly 19% over the last 12 months to outpace AMZN’s 4% decline.

The retail powerhouse has impressed Wall Street with its digital and delivery expansion, as the entire industry, from Kroger KR to Target TGT race to modernize their businesses. Last quarter, Walmart’s U.S. comp sales surged 3.4%. This marked the firm’s fourth straight period of 3% or higher growth in this vital retail category. Plus, the Bentonville, Arkansas-based firm’s U.S. e-commerce sales soared 37%, on top of the year-ago period’s 40% expansion.

Walmart currently offers a slew of delivery and pick-up options, including free two-day shipping on qualifying orders and is on track to offer same-day grocery delivery from 1,600 stores by the end of the year. The company also plans to roll out free next-day delivery options on orders that meet certain requirements and in early June laid out its plans to launch an in-home grocery delivery service.

In an effort to expand its reach, WMT has purchased smaller digital retailers and niche, higher-end companies in recent years, including Jet.com and Bonobos. Walmart also purchased 77% of one of India’s largest e-commerce sites, Flipkart, last August.

Furthermore, despite all of the worries that e-commerce has taken over the retail world, Walmart’s brick and mortar business looks poised to thrive for years to come since e-commerce sales accounted for only 10.2% of total sales in Q1, according to U.S. Census Bureau data.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Outlook ” data-reactid=”31″>Outlook

Moving on, Walmart’s Q2 revenue is projected to pop 1.92% to $130.49 billion, based on our Zacks Consensus Estimates. This would top Q1’s 1% top-line growth that was negatively impacted by currency headwinds. WMT’s U.S. comps are expected to climb 2.57%, according to our Key Company Metrics.

Investors might be disappointed to hear that this would mark the slowest comps growth in the last five quarters. However, it would come on top of the year-ago period’s 4.5% comps expansion. Overall, the company’s fiscal 2020 revenue is projected to jump 2.4% to $526.69 billion, with full-year comps expected to climb 2.98%.

At the bottom end of the income statement, Walmart’s Q2 earning are expected to slip 6.2%, with fiscal 2020 projected to dip 1.4%. But WMT’s EPS is then expected to bounce back 4.6% above our current year estimate in its fiscal 2021. Walmart also boasts an impressive history of earnings beats.

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