Momentum And Discipline: The Street Weighs In On Walmart

Walmart Inc WMT reported second-quarter results on Thursday, highlighted by strong U.S. comps and the 16th EPS beat out of the past 17 quarters.

The Analysts

KeyBanc Capital Markets analyst Edward Yruma maintains an Overweight rating on Walmart with a price target lifted from $125 to $128.

The Buckingham Research Group analyst Bob Summers maintains at Neutral, $109 price target.

Tigress Financial Partners' Ivan Feinseth.

KeyBanc: Momentum And Discipline

Walmart reported "strong" results in which stacked comps for the U.S. business accelerated to 7.3% and was the highest seen in 10 years, Yruma said. The company saw momentum continue from the prior quarter despite facing some weather related challenges early in the quarter.

Walmart was active in markdowns and investing in price during the quarter yet gross margins still came in better than expected, Yruma said. The company saw continued strength in private brands and operational discipline at the executive level.

Management also showed a good balance of between driving operational efficiency (SG&A/sales were higher than usual) and investing for growth. In fact, the recent strategic and tactical enhancements management brought in are increasingly important as the current environment "looks more uncertain" from tariffs and other concerns.

BRG: 'Safe Haven' Stock

Walmart's U.S. business looks to have entered a "sweet spot" where investments to drive traffic are offset by expense leverage, Summers said. The online business continues to show "stellar" results after growing 37% in the second quarter and contributed 140 basis points to comparable store sales.

The company's competitive positioning remains favorable but the stock's valuation needs to be considered before investors buy the stock. The research firm's $109 price target is based on 22.2 times estimated 2020 EPS, which implies an "elevated" valuation levels compared to recent history.

"We believe the quarter will further solidify the stocks status as a "safe haven" but we think trade related commentary may yet provide a better entry point," the analyst wrote in a note.

Tigress: Upside Potential From India

Feinseth said Walmart delivered another strong quarter highlighted by an earnings and comps beat, which followed its best first quarter report in nearly a decade. Management also lifted its full-year outlook as it continues to benefit from traffic and average ticket size growth along with a strong online business and growing expansion into grocery pickup and delivery.

The company has another venue of potential upside from its recent acquisition of India's Flipkart, the analyst wrote in his daily newsletter.