The latest update out of Walmart (WMT) HQ did little to assuage investors concerned about the economic downturn. Shares took a beating after the retail giant lowered its Q2 and full-year profit guidance.
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The main culprit: the market’s current villain, inflation, which has been rising at a speed not seen during the past four decades. As such, consumers’ spending is directed towards essentials such as food rather than discretionary items like electronics and clothes.
The company is frequently regarded as a leading indicator for the health of the entire economy. While the U.S.’s largest grocery retailer noted that more customers are heading to its stores, they are doing so to stock up on items for the shelves and refrigerators but are ignoring items that they don’t need. The change in spending habits means Walmart’s shelves and warehouses are stocked with unwanted items, leading the company to make aggressive price cuts.
Walmart expects Q2’s adj. EPS to drop between 8% to 9% compared to the prior flat to slightly up forecast, while for the full year, the company anticipates a 11% to 13% drop vs. the previous expectation of a 1% decline.
The changes are not much of a concern for MKM analyst Bill Kirk, although the analyst expects other companies to have a harder time adjusting to the new circumstances.
“With full-year expectations similar to current quarter (2Q), we believe the outlook is now appropriate (i.e., not guiding to an improved back-half). A bad Apparel cycle does not impact the long-term investment case for Walmart,” the analyst explained. “This revised, lower outlook reinforces our belief that discretionary retailers’ and tertiary CPG companies’ results will likely face more pressure than food distributors and food retailers.”
All in all, Kirk’s rating on WMT stays a Buy although his price target is slightly lowered from $159 to $152, suggesting shares have room for 20% growth in the year ahead. (To watch Kirk’s track record, click here)
Most analysts also remain on WMT’s side; the ratings break down in favor of 23 Buys vs. 7 Holds, making the consensus view a Strong Buy. Going by the $144.03 average target, shares are expected to climb 14% higher over the one-year timeframe. (See Walmart stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
