Walmart Is On Breakout Watch After Strong Earnings

Walmart Proves It's Not Your Average Retailer

Walmart NYSE: WMT just proved, again, that it is not your average retailer. While the average retailer has seen its sales flatten or decline over the past few months, Walmart sales have been steadily rising. Not only is the company still benefiting from pandemic tailwinds but there is reduced competition in the wake of the pandemic and Walmart’s eCommerce strategy is firing on all cylinders. The fiscal second-quarter results were so good, in fact, they sparked a 1% surge in share prices that has the stock on the verge of breaking out to a new all-time high. If the market can maintain these levels, we see shares of Walmart gaining $20 to $40 before the end of the year.

Walmart Raised Its Guidance For The Second Time

Walmart had a good quarter despite the weak retail sales data that came out alongside it. The company reported $141 billion in consolidated revenue for a gain of 2.4% over last year. 2.4% does not sound like a big gain but the revenue beat consensus by 350 basis points and includes an $8.90 billion impact from divestitures worth about 750 basis points of growth.

The company reports strength in all segments including in Europe which was the most directly impacted by divestiture. On a comp basis, comps rose 5.2% versus the 3.1% expected by the analyst with notable strength in the US. In the US, comps grew by 6.1% while comps at Sams grew by 7.7% and e-commerce grew by 6%. eCommerce sales are up more than 100% from the same period in 2019 and are expected to underpin sales for the foreseeable future.

Moving down the report, the earnings news is good but could be better. The company reports a 21.4% increase in operating income to drive strong earnings but earnings that are mixed in regards to the analyst estimates. The GAAP EPS of $1.52 missed the consensus by a nickel while the adjusted EPS of  $1.78 beat the consensus by $0.21.

Looking forward, the company is expecting revenue strength to continue into the end of the year and guided the market higher for the second time this fiscal year. The company is expecting US comps ex-fuel in the range of 6% to 7% in the third quarter with earnings in the range of $1.30 to $1.40 versus the $1.31 consensus. For the year, the company is now expecting revenue growth to be positive versus a low single-digit decline and for earnings in the range of $6.20 to $6.35 versus the $6 expected by the analyst. A big enough difference to spark some chatter among the analyst. 

The Analyst See Walmart Trading Higher

The analysts are bullish on Walmart and see the stock trading higher. There's been only a little chatter in the wake of the report but the trend of revisions over the past six weeks has been upward. Most estimates are in the range of  $150 to $180 and we think this is a relatively easy target to reach. Not only do the fundamentals support higher prices, but the company has nearly $15 dollars left under its repurchase program. That's worth about 3.5% of the market cap and should help keep price action trending higher over the next two to three quarters. 

The Technical Outlook: Walmart Is About To Set A New All-Time High

Shares of Wal-Mart moved up to set a new all-time high in the wake of the Q2 earnings report. As bullish as the move looks, it's still too early to call it a true break out but we should know for sure within a few days. If the price action can move firmly above the $152.50 level and set a new all-time closing high above $153.60 future movement will be more certain. Once the breakout is confirmed, our first target is between $165 and $170 with another target at $190 assuming the business remains strong and third-quarter earnings satisfy the market.