On Monday, CFRA maintained its Buy rating on Walmart (NYSE:WMT), increasing the price target to $75.00 from $72.00. The revision comes ahead of the retail giant's second fiscal quarter results, which are scheduled to be announced on August 15. The firm anticipates that Walmart will surpass expectations for both revenue and earnings.
Walmart's comparable U.S. sales, excluding fuel, are expected to see a year-over-year increase of 3.5%, with an adjusted earnings per share (EPS) growth of 11% to $0.68, compared to the consensus estimate of $0.65. Despite potential near-term consumer spending headwinds, CFRA holds a long-term optimistic view on Walmart's financial prospects.
The firm's confidence is rooted in Walmart's ability to accelerate operating income growth relative to sales in the coming years. CFRA points to several strategies that could drive this growth, including enhancing first-party and third-party e-commerce profitability, expanding private label offerings, and increasing higher-margin service streams such as advertising and data monetization. Additionally, the deployment of automation in distribution and fulfillment centers, along with an improvement in general merchandise sales via third-party marketplace expansion, are seen as key growth levers.
CFRA has adjusted its 12-month price target up by $3 to $75, based on a multiple of 28 times its January FY26 EPS estimate of $2.68, which has been raised from $2.65. Likewise, the FY25 EPS forecast has been increased to $2.48 from $2.46. This target stands above Walmart's five-year average forward price-to-earnings (P/E) ratio of 24 times.
In other recent news, Walmart Inc. is set to release its second-quarter results, with a projected 4% increase in quarterly revenue, marking the slowest growth rate in nearly two years, according to data from LSEG. This development comes as analysts from RBC Capital Markets comment on the need for increased discounting to attract a cautious consumer base, in light of Amazon (NASDAQ:AMZN)'s reduced retail margin and subdued revenue guidance.
Furthermore, the U.S. Federal Trade Commission (FTC) is launching an investigation into persistent high grocery prices, involving major chains such as Walmart, Costco (NASDAQ:COST), and Amazon's Whole Foods. In a separate development, Walmart Canada has invested $53 million to raise the hourly wages of approximately 40,000 store associates, reflecting the company's strategy to increase investments in its workforce.
In addition to these developments, BMO Capital Markets has raised its price target for Walmart from $75.00 to $80.00, citing the potential for Walmart's valuation to increase as the company continues to prove the strength and reliability of its earnings. Similarly, KeyBanc has increased its price target for Walmart to $82.00 from $75.00, maintaining an Overweight rating on the stock, following recent investor meetings with Walmart's senior management.
InvestingPro Insights
As Walmart (NYSE:WMT) approaches its second fiscal quarter results, CFRA's Buy rating and price target increase to $75.00 echoes the retail giant's strong financial performance. Supporting this view, InvestingPro data highlights Walmart's robust market capitalization of $555.08 billion, underscoring its significant presence in the market. The company's P/E ratio, standing at 29.42, suggests a valuation that is in line with its near-term earnings growth, which is further amplified by a PEG ratio of 0.42, indicating potential undervaluation relative to its earnings growth trajectory.
InvestingPro Tips reveal Walmart's impressive track record of raising its dividend for 29 consecutive years, signaling a commitment to returning value to shareholders. Additionally, the company's status as a prominent player in the Consumer Staples Distribution & Retail industry positions it well to capitalize on industry trends and consumer behaviors. For readers interested in a deeper dive into Walmart's financials and strategic positioning, InvestingPro offers an array of additional tips, with a total of 9 more insights available on the platform.
With revenue growth of 5.68% over the last twelve months and an adjusted operating income of $27.61 billion, Walmart demonstrates financial resilience. The company's next earnings date on August 15 will be a key event for investors tracking its performance. Meanwhile, analysts have set a fair value target of $75, closely aligning with CFRA's revised price target. For investors seeking a comprehensive analysis, the InvestingPro platform offers a fair value estimate of $58.51, providing a contrasting perspective on Walmart's valuation.
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