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Wal-Mart (WMT) Q1 Earnings: Poised for a Beat?


Retail giant Wal-Mart Stores Inc. WMT, is set to report first-quarter fiscal 2018 results before the opening bell on May 18. The question lingering in investors’ minds is, whether the company will be able to maintain its positive earnings surprise streak in the to-be-reported quarter. In fact, the company has outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with an average of 4.8%.

Wal-Mart forms part of the Retail-Wholesale sector. Per the latest Earnings Preview, we note that the above mentioned sector’s earnings growth looks disappointing. While total earnings for the sector are estimated to decline 1.7%, revenues are projected to improve 3.3%.

Let’s delve deeper how things are shaping up for this announcement.

What Does the Zacks Model Unveil?

Our proven model shows that Wal-Mart is likely to beat earnings because it has the right combination of two key ingredients.

Zacks Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +1.04%.This is because the Most Accurate estimate is at 97 cents, while the Zacks Consensus Estimate is pegged lower at 96 cents. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Wal-Mart currently carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of Wal-Mart’s Zacks Rank #3 and an Earnings ESP of +1.04% makes us very optimistic about a possible earnings beat.

Which Way are Estimates Treading?

Let’s look at earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company right before the earnings release. The current Zacks Consensus Estimate for the quarter under review has remained unchanged over the past 30 days and is currently pegged at 96 cents, down 1.75% from the year-ago quarter.

For fiscal 2017, the Zacks Consensus Estimate increased over the past 30 days and is pegged at $4.33 per share, up 0.31% from the year-ago quarter. Analysts polled by Zacks expect revenues of $117.60 billion and $494.2 billion for the first quarter and fiscal 2018, up 1.46% and 1.72% from the year-ago period.

Wal-Mart Stores, Inc. Price, Consensus and EPS Surprise

Wal-Mart Stores, Inc. Price, Consensus and EPS Surprise | Wal-Mart Stores, Inc. Quote

Factors Influencing the Quarter

Wal-Mart has been striving to understand the evolving needs of customers to regain their confidence and boost sales. It has delivered positive comps in the U.S. in the last 10 quarters. Moreover, traffic improved for the ninth consecutive quarter, owing to the company’s efforts to modernize stores for higher footfall and improvement in consumer spending. The company continues to expect positive comps year over year at Wal-Mart U.S. in fiscal 2018.

Wal-Mart expects U.S. comp sales growth in the range of 1−1.5% for the 13-week period ending Apr 28. Sam’s Club comp sales, without the impact of fuel sales, are expected to increase around 1%. The company expects earnings in the range of 90 cents–$1.00 per share.

Wal-Mart’s shares have increased 14.7% in the past one year, outperforming the Zacks categorized Retail-Supermarkets industry’s growth of 11.0%.

While Wal-Mart posted positive earnings streak for the sixth consecutive quarter, top line remains sluggish due to currency and deflationary pressure the industry is grappling with.

Wal-Mart is also making huge investments in e-commerce initiatives to compete with the biggest online retailer, Amazon.com AMZN. In this regard, the company continues to make huge investments in e-commerce initiatives, including acquisitions. The company has made three e-commerce acquisitions, since the buyout of Jet.com, U.S. e-commerce company, in Sep 2016.

The Jet.com acquisition was a major step toward accelerating its online business. It offered customers a massive online marketplace where they can purchase items at discounted prices.

In Jan 2017, the company started offering free two-day shipping to U.S. shoppers on a minimum order of $35 on over 2 million items and that too, without any membership fee. The company competes with Amazon’s Prime shipping program, which charges customers $99 a year for two-day shipping with additional features like a streaming video service. This project will replace Wal-Mart's existing shipping program named 'Shipping Pass' that charge shoppers an annual membership fee of $49.

In addition to offering two-day shipping to stores, Wal-Mart continues to offer ‘same-day store Pickup’ on many items and ‘Online Grocery Pickup’ at more than 600 locations across the country. The company intends to expand this service in fiscal 2018.

However, the Bentonville, AR-based company still faces many headwinds which are likely to impact earnings in the near term. Higher expenses, lower margins at Wal-Mart U.S. and currency headwinds are expected to affect the results. Nevertheless, the company’s efforts to boost sales and regain investors’ confidence remain impressive.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat:

Fred’s Inc. FRED has an Earnings ESP of +16.67% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The TJX Companies, Inc. TJX has an Earnings ESP of +1.27% and holds a Zacks Rank #3.

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