Retail giant Walmart Inc. (WMT) delivered impressive results in the fiscal second quarter, surpassing analyst expectations. Commenting upon the positive performance, WMT’s President and CEO, Doug McMillon, said, "Around the world, our customers and members are prioritizing value and convenience. They're shopping with us across channels - in stores, Sam's Clubs, and they're driving eCommerce, which was up 24% globally."

McMillon also expressed confidence in the company's outlook for the remainder of the year, emphasizing that its inventory is well-managed and well-positioned for success in the latter part of the year.

In addition to having confidence in the company’s inventory management, McMillion also anticipates a positive holiday season. As the crucial holiday shopping season approaches with just a few weeks left, retail executives are grappling with the challenge of determining the quantity and types of merchandise to stock. However, WMT appears well-equipped to overcome this challenge.

For instance, WMT’s merchandise selection strategy is not solely reliant on the judgment of retail executives, instead, it hinges on sophisticated software developed around 2019. This software utilizes a machine-learning algorithm that takes into account factors such as weather patterns and historical sales data for each of WMT's 4,700+ U.S. locations.

Moreover, according to recent Consumer Price Index (CPI) data from the Bureau of Labor Statistics, food-at-home inflation in August showed a year-over-year increase of only 3%. It is worth noting that in August of the previous year, food-at-home inflation was considerably higher, standing at more than four times that rate, with a year-over-year increase of 13.5%.

While WMT’s grocery sales in recent years have experienced a boost due to rapid inflation, as food-at-home inflation eases, the retail giant foresees a significant shift in consumer spending behavior.

Consumers with more discretionary income are expected to redirect their spending away from groceries and general merchandise. This shift in consumer spending patterns could bode well for WMT’s general merchandise segment. 

Furthermore, WMT’s shares have surged 23.4% over the past year and 17.9% over the past six months to close the last trading session at $164.64.

Here is what could shape WMT’s performance in the near term:

Robust Financials

WMT’s total revenues for the second quarter of fiscal 2024 (ended July 31, 2023) increased 5.7% year-over-year to $161.63 billion, while its operating income rose 6.7% year-over-year to $7.32 billion.

The company’s attributable net income amounted to $7.89 billion and $2.92 per share, up 53.3% and 55.3% from the prior-year quarter, respectively. Moreover, its cash and cash equivalents came in at $13.89 billion, increasing 61% compared to $8.63 billion as of January 31, 2023.

Solid Historical Growth

WMT’s revenue grew at CAGRs of 5.2% and 4.3% over the past three and five years, respectively. Furthermore, the company’s net income improved at a 21.9% CAGR over the past five years, while its EPS for the same period increased at a CAGR of 24.3%.

Favorable Analyst Estimates

The consensus revenue estimate of $158.22 billion for the fiscal third quarter (ending October 2023) represents a 4.5% increase year-over-year. The consensus EPS estimate of $1.55 for the ongoing quarter indicates a marginal improvement year-over-year. The company has an excellent surprise history, surpassing the consensus revenue and EPS estimates in each of the trailing four quarters.

Furthermore, WMT’s revenue and EPS for the current fiscal year ending January 2024 are projected to grow 5.4% and 3% year-over-year to $638.85 billion and $6.48, respectively.

High Profitability

WMT’s trailing-12-month ROCE of 17.87% is 58.5% higher than the 11.28% industry average. Its trailing-12-month ROTC of 10.60% is 63.7% higher than the industry average of 6.48%. In addition, the stock’s trailing-12-month ROTA of 5.50% is 28.1% higher than the industry average of 4.30%.

Furthermore, WMT’s trailing-12-month asset turnover ratio of 2.51x is 176.2% higher than the industry average of 0.91x. Also, its trailing-12-month cash per share of $5.16 is 219.8% higher than the industry average of $1.61.

POWR Ratings Show Promise

WMT’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. WMT has an A grade for Stability and Sentiment, justified by its 24-month beta of 0.64 and favorable analyst estimates. Also, the stock has a B grade for Growth and Quality, consistent with its solid historical growth record and higher-than-industry profitability.

WMT is ranked #3 in the 38-stock A-rated Grocery/Big Box Retailers industry. Click here to access WMT’s Value and Momentum ratings.

Bottom Line

WMT’s investment in advanced technologies, such as machine learning algorithms and robotics, reinforces its competitive edge in the retail industry. These technologies enable the company to make data-driven decisions and enhance its operational efficiency. Moreover, the anticipated shift in consumer spending from groceries to general merchandise, coupled with easing food-at-home inflation, could further improve the company’s topline.

Therefore, given the current sound financial standing and a positive outlook from analysts, WMT presents a highly attractive investment opportunity and could be an ideal portfolio addition this week.

How Does Walmart Inc. (WMT) Stack Up Against Its Peers?

While WMT has an overall grade of A, equating to a Strong Buy rating, you may also check out these other stocks within the Grocery/Big Box Retailers industry: Natural Grocers by Vitamin Cottage, Inc. (NGVC), Village Super Market, Inc. (VLGEA), and Empire Company Limited (EMLAF), with an A (Strong Buy) rating. For exploring more A and B-rated Grocery/Big Box Retailers stocks, click here.

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WMT shares were trading at $163.99 per share on Monday afternoon, down $0.65 (-0.39%). Year-to-date, WMT has gained 16.99%, versus a 17.06% rise in the benchmark S&P 500 index during the same period.

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