Walmart (World Trade Center – (Free Report) has been one of the most searched for stocks on Zacks.com recently, so it may be a good idea to take a look at some facts that could drive this stock’s performance in the near term.
Over the past month, shares of the world’s largest retailer have risen +9.9%, compared to a +5.1% change for the Zacks S&P 500 Composite Index. The Zacks Retail – Supermarkets industry, which Walmart belongs to, has risen 9.5% during that period. The big question here is, what is the future direction for this stock?
Media announcements or rumors of significant changes in a company’s business outlook will usually make the stock “trend” and cause immediate price movements, but there are always some fundamental facts that ultimately drive the buy-and-hold decision.
Earnings forecast revision
At Zacks, we evaluate changes in a company’s future earnings estimates above all else because we believe the present value of future earnings streams determines the fair value of a stock.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings forecasts in light of the latest business trends. When a company’s earnings forecast goes up, the fair value of its stock also goes up. And if a stock’s fair value is higher than its current market price, investors are more inclined to buy the stock, resulting in an increase in its share price. For this reason, empirical research shows a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
Walmart is expected to post earnings of $0.65 per share for the current quarter, which would represent a +6.6% change from the year-ago period. Over the past 30 days, the Zacks Consensus Estimate has changed by +1.1%.
The consensus earnings estimate for the current fiscal year is $2.41, indicating a change of +8.6% year over year. This estimate has changed +2.8% over the past 30 days.
Looking at the coming fiscal year, the consensus earnings estimate is $2.62, representing a +8.4% change from what Walmart was expected to report a year ago. Over the past month, estimates have changed +2.8%.
The Zacks Rank, our proprietary stock rating tool that has an impressive outside-audited track record, effectively harnesses the power of earnings estimate revisions and is a more reliable indicator of near-term stock price movements. The magnitude of the recent change in the consensus estimate, along with three other factors related to earnings expectations, has earned Walmart a Zacks Rank #2 (Buy).
The chart below shows the evolution of the company’s consensus EPS estimates over the next 12 months.
12 Month EPS
Projected Revenue Growth
Revenue growth is arguably the best indicator of a company’s financial health, but if a company can’t grow its revenue, then nothing happens. After all, it’s nearly impossible for a company to grow its revenue over the long term without growing its revenue. Therefore, it’s important to know a company’s revenue growth potential.
For Walmart, the consensus sales estimate for the current quarter is $168.46 billion, indicating a change of +4.2% year-over-year. For the current and next fiscal years, estimates of $675.83 billion and $700.76 billion indicate changes of +4.3% and +3.7%, respectively.
Last reported results and surprise history
Walmart reported revenue of $161.51 billion for the most recent quarter, up 6.1% from the same period last year. EPS was $0.60 for the same period, up from $0.49 in the same period last year.
Compared to the Zacks Consensus Estimate of $159.5 billion, reported revenues represented a surprise of +1.26%. EPS surprise was +15.38%.
Over the last four quarters, Walmart has surpassed EPS estimates three times, and the company also topped consensus revenue estimates each time during that period.
evaluation
No investment decision can be made efficiently without taking into account stock valuation. Whether a stock’s current price properly reflects the intrinsic value of its business and the company’s growth prospects is a key factor in determining future stock price movements.
Comparing the current value of a company’s valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S) and Price to Cash Flow (P/CF) with the company’s historical values helps in determining whether the stock is fairly valued, overvalued or undervalued, while comparing a company with its peers on the basis of these parameters gives a good sense of the fairness of the stock’s valuation.
The Zacks Value Style Score (part of the Zacks Style Scores system) pays close attention to both traditional and non-traditional valuation criteria to rate stocks from A to F (with An being better than B, B being better than C, etc.), which can be very helpful in identifying whether stocks are overvalued, fairly valued or temporarily undervalued.
On this score, Walmart is rated a C, indicating that it is trading in line with its peers. Click here to see the values of the metrics that drove this rating.
Conclusion
The facts discussed here, and many other information on Zacks.com, may help you decide whether the market buzz surrounding Walmart is worth following, although the company’s Zacks Rank #2 suggests it has the potential to outperform the overall market in the near term.
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The little-known chemical company’s shares are still very cheap, even though they’re up 65% over the last year. With unabated demand, soaring 2022 profit expectations, and $1.5 billion in stock buybacks, retail investors could get in at any time.
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