Walmart First Quarter Earnings Preview

Walmart [[WMT]] is scheduled to report their first quarter results before the market opens on Thursday, May 14. Based on our analysis, we at are expecting WMT to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $96.80 billion and EPS of $.77. This would represent a 2% increase in revenues from last year’s $95.30 billion in the same period. The current analyst consensus estimates calls for revenues of $96.82 billion and EPS of $.76. On February 17, the company provided first quarter EPS guidance of $.72 – $.77.


Walmart’s shares have been trading down since the company reported disappointing March store sales that showed only 1.4% growth. However, at the same time CFO Tom Schoewe indicated that earnings would be “toward the high end of the range we provided in February, $0.72 to $0.77 per share.” A strong April performance could even produce earnings above the company’s guidance range.


While investors are clearly feeling more bullish these days, the reality is that the economy still has a long road ahead before we can achieve a full recovery. Economists still expect job losses and escalating unemployment well into 2010. Therefore, we believe that consumers will continue to focus on value plays for at least the next 12-18 months. Walmart, as one of the ultimate value plays, stands to benefit from this sentiment.


Share Performance

Since the beginning of the year, Walmart’s shares are down over 10%. In 2008, Walmart was the Dow’s top performing stock – increasing 18% in a year where the Dow Jones industrial average fell 34%.



Shares are now trading at 13x consensus 2010 EPS estimates. This is a slight discount to the relative valuations of their peer group. We believe that the recent drop in Walmart’s stock reflects investors increasing optimism in an economic recovery. As such they are shifting out of defensive stocks like Walmart into more aggressive plays. However, we believe that WMT shares are currently undervalued and the recent sell-off presents a great buying opportunity for investors.


Recommendation: Buy with a $56 price target.


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