Walmart’s results reassured analysts. (Photo: 123RF)
What to do with stocks from Walmart, Lightspeed, and Alimentation Couche-Tard? Here are some analyst recommendations that prices are likely to move in the near future. Note: The author may have a completely different opinion from the one expressed.
Walmart (WMT, $138.25, pre-opened): Results less bad than expected
Retailer Walmart reported financial results for the second quarter of its fiscal 2023 that beat lowered expectations.
The company’s management had warned markets in late July against trimming its quarterly and full-year earnings forecasts. She then explained that her clientele was spending more on groceries and gas and less on her other goods, which generally have higher margins. At the time, the company was struggling with very high inventories, especially for clothing.
“We are encouraged by the de-stocking of excess inventory, but it is important to recognize that the consumer backdrop remains one of uncertainty,” writes RBC Capital Markets analyst Steven Shemesh.
The latter points out that the company has been able to liquidate most of its summer-season apparel, but still has work to do in the electronics and housewares and sporting goods sectors.
“Overall, inventories increased 26% year over year in the second quarter compared to 32% in the previous quarter. Inflation is responsible for 40% of this annual increase,” claims the analyst.
More importantly, he said, Walmart’s management estimates that excess inventory at the end of the second quarter totaled $1.5 billion (billion US dollars), compared to $3 billion three months earlier. “Management assumes that the situation will have returned to normal by the Christmas business,” said the analyst.
According to him, Walmart’s stock remains “relatively safe.” In light of the second quarter results, the company is raising its earnings per share guidance for fiscal years 2023 and 2024 to $5.86 and $6.55, respectively. He previously expected earnings per share of $5.64 in 2023 and $6.13 in 2024. “This change is largely due to better-than-expected profit margins,” the analyst says.
The company also said its supply chain woes appear to be improving as fuel and container shipping costs declined from year-highs but were still above last year.
Management raised its guidance for fiscal 2023 operating income and earnings per share, the latter of which are expected to be 9% and 11% below fiscal 2022 levels, respectively. The previous forecast was for a decline of 11% and 13% respectively.
Steven Shemesh maintains an “Outperform” rating on the company’s stock and raises its one-year price target to $151 from $135. This revised level is based on a ratio of 23 times expected earnings per share for fiscal 2024.
Lightspeed (LSPD.TO, $26.81): a meeting with management that satisfies ATB Capital Markets