Walmart Stock Drops 8% Despite Solid Q3 Results, Analysts Cite Margin Concerns

By Don Francis, Editor
November 18, 2023 8:33 AM UTC
Walmart Stock Drops 8% Despite Solid Q3 Results, Analysts Cite Margin Concerns

Truist Securities's Scot Ciccarelli raised their price target on Walmart (NYSE: WMT) by 1.2% from $168 to $170 on 2023/11/17. The analyst maintained their Hold rating on the stock.

In spite of "solid" Q3 2024 results, reported on 2023/11/16, Walmart's stock price dropped 8% because investors were hoping for better margin performance, Ciccarelli told investors.

The analyst explained that this was especially true considering the expansion of its "ancillary businesses," which generated greater margins.

Nonetheless, although grocery costs are staying relatively stable and there are pressures on discretionary spending, Walmart still managed to post solid sales growth and further gains in market share, Ciccarelli noted.

For Q3 2024, Walmart reported earnings per share (EPS) of $1.53, which was in line with the Zacks Consensus Estimate but beat, by 2%, Q3 2023’s $1.50. Revenue came in at $160.8 billion, beating the Zacks Consensus Estimate of $159.5 billion and Q3 2023’s $152.81 billion by 5.2%. Net sales for the quarter were $159.44 billion, up 5.3% year-over-year, while operating income saw a significant increase of 130% year-over-year, reaching $6.20 billion.

Looking ahead to FY 2024, Walmart's management provided guidance for EPS of $6.40 to $6.48, net sales growth of 5% to 5.5%, and operating income growth of 7% to 7.5%.

Commenting on the company's Q3 performance and outlook, President & CEO Doug McMillon stated, “We had strong revenue growth across segments for the quarter, and we’re excited to get an early start to the holiday season. From a Thanksgiving meal that costs less than last year to great prices on fashion, toys, electronics, and seasonal decorations, we’re here to help families worldwide make this a special time. Looking ahead, our inventory is in good shape, the teams are focused, and our associates are ready to serve our customers and members whenever and however they want to be served.”

Alongside Scot Ciccarelli, several other analysts also updated their ratings and price targets for Walmart on November 17, 2023. Stifel Nicolaus's Mark Astrachan lowered their price target by 1.2%, from $171 to $169, and maintained their Hold rating on the stock. Morgan Stanley's Simeon Gutman also lowered their price target by 1.2%, from $170 to $168, but maintained their Strong Buy rating. Evercore ISI Group's Greg Melich lowered their price target by 5.3%, from $187 to $177, while maintaining their Buy rating.

According to data from WallStreetZen, 84.2% of top-rated analysts currently rate Walmart as a Strong Buy or Buy, with 15.8% seeing it as a Hold. No analysts recommend or strongly recommend selling the stock.

The consensus forecast among analysts is that Walmart's upcoming year will deliver earnings per share (EPS) of $5.93. If the analysts are correct, this would represent a 14% increase on a year-over-year basis.

Looking at the stock's performance, Walmart has seen a year-over-year increase of 5.1%. However, during the same period, it has trailed behind the S&P 500, which is up 14%.

Scot Ciccarelli, the analyst who raised Walmart's price target but maintained a Hold rating, is ranked in the top 5% out of 4,399 Wall Street analysts by WallStreetZen. With an average return of 9.6% and a win rate of 60%, Ciccarelli specializes in the Consumer Cyclical, Consumer Defensive, and Industrials sectors.

Walmart Incorporated operates retail, wholesale, and other units in the U.S. and internationally through three segments: Walmart U.S., Walmart International, and Sam's Club. The company operates various types of stores, including supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, discount stores, membership-only warehouse clubs, and ecommerce websites. Founded in 1945, Walmart is headquartered in Bentonville, Arkansas.

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