Earnings Preview: Can Walmart Remain a Safe Haven Amid Weak Retail Sales?

Walmart (NYSE:WMT) is often considered a top choice for investors seeking reliable defensive stocks due to its extensive operations and consistent profitability. One of the retail behemoth's biggest advantages is its successful adoption of cutting-edge technology, particularly in automating warehouse processes and optimizing inventory and supply chain management.

Tomorrow, investors will be closely watching its quarterly results. The company is expected to report $1.32 EPS and $147.8 billion in revenue.

Using the InvestingPro tool, we will take a closer look at Walmart's financials to see if the stock is worth buying now. You can do the same for virtually any stock using this link.

Walmart Upcoming Earnings

Source: InvestingPro

Price Advantage Remains One of Walmart’s Key Strengths

One of the key features of the big-box chain business is its relatively low margin, which allows it to generate regular profits while keeping prices low, mainly due to economies of scale.

This is important because consumers pay close attention to product prices when comparing competitors, especially in a period of high inflation.

According to DataWeave, which analyzed prices from early 2022 to February 2023, Walmart's average prices for a selected basket of nearly 600 products rose by only 3%.

This is much better than the average inflation rate and its closest competitors.

As evidenced by the ongoing downward trend in retail sales, the retail sector is currently facing a challenging environment. This situation affects not only Walmart but also the sector as a whole.

U.S. Retail Sales

As the US economy enters a recession, retail sales could weaken further in the coming months. We could see a rebound in 2024, but it is highly unlikely before that.

Analysts Predict a Bright Future

Analysts' projections for the future earnings per share indicate an extremely optimistic outlook for the company.

Earnings per share are expected to increase steadily over the next 10 years and double by 2033. This highlights tremendous long-term growth potential for the company.

Walmart EPS Expectations

Source: InvestingPro

While it is true that predictions further out have a greater margin of error, the primary goal is to highlight the potential uptrend.

Of Walmart's last 8 earnings results, 7 have beaten EPS estimates, indicating stronger-than-expected performance.

In addition, the company has consistently delivered positive surprises on the top line. This track record of earnings beats reinforces the overall positive sentiment around the company's performance.

Predictions vs. Actual Quarterly Results

Source: InvestingPro

Walmart: Technical View

After a strong rally since mid-March, the bulls have encountered a formidable resistance zone at $154. If the stock is to sustain above $150, bulls need to defend the local support cluster within the $148-$149 range.

Walmart Price Chart

A potential break below $148 would trigger a more significant correction, expected to reach around $140. However, such a move would require a significant weakening in earnings and a further decline in retail sales.

On the other hand, if the uptrend continues, the target level will remain at the historical highs of around $161 per share.

With InvestingPro, you can conveniently access comprehensive information and outlook on a company in one place, eliminating the need to gather data from multiple sources such as SEC filings, company websites, and market reports.

In addition to analyst targets, InvestingPro provides a single-page view of complete information, saving you time and effort.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counseling, or investment recommendation. As such, it is not intended to incentivize the purchase of assets in any way. I want to remind you that any type of asset is evaluated from multiple points of view and is highly risky; therefore, any investment decision and the associated risk remain with the investor.