- Walmart exceeded market expectations with a stellar quarter, showcasing robust revenue growth and solid performance across all segments.
- The company, despite facing negative free cash flow initially, demonstrates resilience, with earnings and cash flow projected to strengthen in the upcoming months.
- Investors have much to look forward to with reliable capital returns, including significant buybacks and dividend payouts in Q1.
Investors are showing enthusiasm as Walmart (NYSE:) stock rockets ahead on the back of its dominant market position and sustained growth trajectory. This surge has breathed new life into the market, signaling that there is more room to grow.
Though bumpy roads lie ahead due to inevitable market fluctuations, the potential for a 20% uptick by year-end remains plausible. Analysts have steadily increased their price targets, indicating a bullish sentiment that aligns with the market’s lofty expectations. The current pre-release activity seems to be steering the market towards the upper end of the anticipated target range, potentially pushing prices up to $175, approximately 20% above the recent surge post-release.
Walmart’s Exemplary Quarter Despite Low Expectations
Walmart’s recent financial performance wowed investors on all fronts. Notably, the company’s achievement is even more impressive when considering that the initial expectations were relatively modest, with a significant portion of analysts revising their forecasts downward. However, the recorded revenue of $161.5 billion, exhibiting a 6% spike, surpassed the consensus by a notable 200 basis points.
All business segments demonstrated growth, with the International division leading the charge with a 12.1% surge (10.7% in FXN terms). In the US, comparable sales rose by 3.8%, entirely driven by transaction volume. Sam’s Club also delivered a commendable 4.6% growth in comps, supported by a 4.4% increase. Although Sam’s Club experiences transaction-driven comps, there was a slight reduction in average ticket prices. Additionally, a substantial 13% uptick in membership revenue at Sam’s Club signifies potential revenue and earnings growth in the near term. However, this may be short-lived due to discounted memberships offered in April, potentially affecting renewals in the subsequent year.
The eCommerce arm remains a significant revenue driver for Walmart. Global eCommerce sales surged by 21%, propelled by online, same-day, and delivery channels. Furthermore, the Global Ad business saw a healthy 24% growth, aiding overall performance. Strong results across all categories also contributed to margin improvements. The net outcome was a 9.6% rise in consolidated operating income, a 13.7% increase in adjusted operating income, and a substantial 22.5% boost in adjusted earnings. Adjusted earnings of $0.60 outperformed expectations by more than 1000 basis points.
Guidance updates have played a crucial role in bolstering investor confidence. By revising forecasts to the higher end of the spectrum or beyond, Walmart has managed to surpass both consensus estimates and its prior guidance. With a positive momentum and a growing market share in key sectors like grocery, Walmart may even outshine its revised guidance and further raise the bar, despite prevailing retail sector challenges.
Steady Growth and Resilience in Walmart’s Capital Returns
While Walmart experienced negative free cash flow in Q1, there is no cause for alarm as improvements are expected in the near future. The company’s capital return strategy remains robust, with Q1 witnessing significant returns to shareholders through dividends and $1.1 billion in share repurchases, equivalent to about 0.2% of the market capitalization. Share buybacks have effectively reduced the share count by an average of 0.35% year-over-year in the quarter and are likely to continue throughout the year. The dividend, offering investors an annual yield of approximately 1.45%, is in line with the S&P 500’s average. Moreover, the dividend payout is growing steadily and is expected to see further mid-to-low single-digit increments this year.
Market indicators paint a promising picture. Following the Q1 results and updated guidance, Walmart’s stock has surged by over 5% to reach a fresh all-time high. This positive momentum has broken the stock out of a consolidation phase, potentially paving the way for a $20 upward movement. If this trend continues, Walmart’s stock may breach the current analyst high target of $80. Nonetheless, there is a risk of a market reversal, especially considering the attractive price levels that Walmart shares currently offer for profit-taking, potentially capping gains in the coming months. Such a scenario might prompt a pullback, testing support around $60 or lower, before aiming for new highs.
