Wal-Mart Stores, Inc.WMT has long been a favorite in the investor community, thanks to its spectacular past performance. This in turn has been driven by its various strategic initiatives, including aggressive efforts to counter Amazon's AMZN growing online dominance. The reflection of these factors and investors' confidence in Walmart's ongoing prospects is visible in the company's marvelous bull run.
Well, this big-box retailer has rallied 44.4% year to date, crushing the industry's 33.7% upside. So, let's delve deeper into the factors that have spurred investors' sentiments about this Zacks Rank #2 (Buy) stock, which is most likely to keep its robust show on.
Sturdy Surprise History
Walmart has been riding on its solid surprise history, which was retained in third-quarter fiscal 2018 that marked Walmart's ninth and 13th straight quarter of positive earnings surprise and U.S. comps growth, respectively. Also, both top and bottom lines advanced year over year, courtesy of constant expansion efforts and splendid e-commerce performance. Incidentally, U.S. comps (excluding fuel) rose 2.7%, backed by improved comp traffic. Moreover, e-commerce sales positively impacted comp sales at Walmart U.S. by 80 bps. Also, management stated that its food categories performed exceptionally well and recorded the highest comps in about six years.
Outlook Boosts Estimates
Management remains encouraged about its ongoing performance, as reflected in its raised earnings guidance for fiscal 2018 and favorable comps view for the fourth quarter. The company now envisions adjusted earnings in the range of $4.38-$4.46 per share, as compared with the prior expectation of $4.30-$4.40. In fourth-quarter fiscal 2018, Walmart expects both U.S. comps (excluding fuel) and Sam's Club comps (excluding fuel) to increase in a range of 1.5-2.0%
Wal-Mart Stores, Inc. Price and Consensus
Wal-Mart Stores, Inc. Price and Consensus | Wal-Mart Stores, Inc. Quote
Consequently, the Zacks Consensus Estimate for the fourth quarter and fiscal 2018 has risen from $1.33 to $1.36 and from $4.37 to $4.43, respectively over the past 30 days. Apart from boosting analysts' sentiment, management's outlook also appeased investors, as evident from the 8.9% jump in Walmart's shares since the announcement.
E-Commerce: Walmart's Biggest Driving Factor
Walmart is trying every means to evolve with the changing consumer environment to compete with brick-and-mortar rivals and e-commerce king Amazon. In this regard, the company has been taking several e-commerce initiatives, including buyouts, alliances, and improved delivery and payment systems. Evidently, Walmart's buyouts of Bonobos, ShoeBuy, Moosejaw, ModCloth and Jet.com underscore its quest to build an impressive digital brand portfolio. The company's Walmart Pay mobile payment system, and Mobile Express Returns program further highlight its focus on accelerating online business and making shopping easier. Apart from this, Walmart is taking strong efforts to expand in the booming online grocery space, which was a major contributor to its e-commerce sales in the third quarter. In fact, Walmart's focus on enhancing its delivery services also resonates well with its strategy of growing its online grocery sales.
International Business Bodes Well
Walmart's international business performed quite well in the third quarter, wherein results were driven by broad-based growth, with 10 out of 11 markets recording positive comps. Notably, Mexico and China performed exceptionally well, while results in UK also improved in the quarter. Walmart's international sales were mainly fueled by strength in food and staples categories. Also, the company's constant e-commerce initiatives (like partnership with JD.com) and efforts to enhance logistics efficiencies drove results. The company remains committed toward achieving growth across all its markets, on the back of its fresh products; expansion of online grocery and private brands.
Walmart maintains a disciplined capital allocation strategy and remains focused on using excess cash to enhance shareholder returns through dividend payouts and share buybacks. During third-quarter fiscal 2018, Walmart paid $1.5 billion in dividends and repurchased about 27 million shares worth $2.2 billion under its $20-billion authorization (announced in October 2015). Further, management stated that from Nov 20, it will make buybacks under its October 2017 authorization of $20 billion.
We believe that the aforementioned factors set the stage for a sturdy ongoing performance, thus making Walmart a solid investment option.
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