Walmart’s (NYSE:WMT) stock has traded in the red for most of this year (refer to the graph below). Food and fuel inflation and excess inventory took a toll on its margins and stock price. However, Walmart’s stock has recouped most of its lost ground in the past month and eventually closed in the green following its strong Q3 results on November 15. Also, its efforts to balance inventory could support the recovery of WMT stock.
The graph shows that WMT stock has remained under pressure. However, it fared better than the SPDR S&P 500 ETF Trust (SPY), a proxy for the S&P 500 Index.
A Quick Look at WMT’s Q3 Performance
Walmart’s Q3 had many positives. Its earnings per share of $1.50 easily outperformed the Street’s forecast of $1.32. Further, its U.S. comparable sales growth rate accelerated sequentially (came in at 8.2% compared to 6.5% in Q2). While its U.S. comps remained strong, Sam’s Club segment continued to deliver stellar growth on the back of a higher member count, which reached an all-time high in Q3. Also, Flipkart and Walmex performed well.
Thanks to the strength across its business segments, Walmart posted revenues of $152.8 billion, up 8.7% year-over-year. (Learn more about WMT’s financials here.)
WMT’s CEO, Douglas McMillon, said, “We’ve made good progress to improve our inventory position.” He sees further progress in inventory position in Q4 and expects to “end the year in even better shape.”
Management’s commentary indicates that the pressure on margins will ease in 2023. However, promotions and markdowns could continue to hurt its near-term margins.
Guggenheim analyst Robert Drbul said, “We believe the company has the ability to sell the majority of its excess inventory in 4Q. While we maintain our cautious outlook on 4Q, including inflationary pressures, a higher promotional environment, and conservative category mix assumptions, we are increasing our 2022 EPS estimate to $6.05 from $5.85, given the upside to the quarter.”
Drbul is bullish on WMT stock and expects “supply chain and inventory markdowns to normalize” in 2023.
Is WMT Stock a Good Buy?
On TipRanks, WMT stock sports a Strong Buy consensus rating based on 19 Buy and four Hold recommendations. Moreover, these analysts’ average price target of $156.86 implies 6.4% upside potential.
Bottom Line
While near-term macro concerns, margin headwinds, and adverse currency movement could pose challenges, Walmart is poised to benefit from the ongoing momentum across its business segments. Further, the easing of margin headwinds should support the recovery in its stock price.
