These Two Wal-Mart Analysts Are Not Impressed By Q3 Improvements

• The market had a moderately positive initial reaction to Wal-Mart Stores, Inc. WMT’s Q3 earnings beat.
• Analysts at Deutsche Bank and Barclays are not convinced that the company’s recent investments will result in meaningful growth.
• Walmart’s stock remains down more than 29 percent in 2015.

Walmart’s stock is up 1.5 percent in Wednesday’s session after the company reported a Q3 earnings beat on Tuesday. However, with the stock down more than 29 percent so far in 2015, shareholders are looking for a bit more than a modest earnings beat. Here’s a look at what Deutsche Bank and Barclays had to say about Walmart’s earnings and what shareholders can expect in coming quarters.

The numbers
Walmart reported Q3 earnings of $1.03/share, slightly above consensus expectations of $0.98. However, earnings fell short of Q3 2014’s EPS of $1.15.

Return on customer service initiatives unclear
Walmart management reported that customers are starting to notice improvements in stocking, cleanliness, service and check-out speeds. However, Barclays analyst Meredith Adler doesn’t see how these improvements in customer experience will meaningfully impact Walmart’s bottom line.

“These improvements are coming at a big cost in terms of labor investments, with the higher costs likely to continue at least into FY17, with little visibility into a potential acceleration in sales,” she explains.

Adler remains cautious on a potential Walmart turnaround story. Barclays maintains its Equal Weight rating on Walmart, but raised its price target to $61.

Deutsche Bank agrees
Deutsche Bank analyst Paul Trussell agrees that Walmart’s labor initiatives will likely not result in sales growth. “We see elevated labor investments as mostly catch-up/market-based and not necessarily a driver of meaningful returns ahead,” he wrote in a new report.

Deutsche Bank has a Hold rating on Walmart and a $63 target for the stock.

Disclosure: the author holds no position in the stocks mentioned.