Analysts check out Walmart stock price targets after earnings

In the movie “Where the Heart Is” Natalie Portman portrays a woman who feels right at home in a Walmart  (WMT)  store.

As a matter of fact, the store is her home after the pregnant teenager is abandoned by her boyfriend.

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Of course, most customers don’t actually move into their local Walmart (right?), but they are dedicated, and the retailing giant’s executives say they’re coming from a higher income bracket.

The Bentonville, Ark., company on Thursday posted stronger-than-expected fiscal-first-quarter earnings and said full-year profit could top its forecasts.

High-end customers, defined as households earning more than $100,000 a year, helped drive a 22% surge in online sales, the world’s largest retailer said.

“Consumer economic conditions have been relatively consistent since the start of the year,” Chief Financial Officer John David Rainey said during the company’s earnings call with analysts. “Many of the value-seeking behaviors we witnessed last year have continued, particularly around seasonal events.”

Rainey said Walmart stratifies the incomes of $50,000 and below, $50,000 to $100,000, and $100,000 and above. As a general rule, he said, “our customer base breaks down about one-third in each group.”

Analysts react to Walmart earnings

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Walmart CFO: ‘not just a play for value anymore’

As to why Walmart is attracting the high-end crowd, Rainey said “the word we’ve been using here is convenience.”

“We are not just a play for value anymore,” he said. “And convenience matters to someone irrespective of what your paycheck is, irrespective of what your income level is. And we expect that to be durable. We don’t expect that to change.”

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Chief Executive Doug McMillon said the company is “focused on what we’re doing and how we earn business with customers and members.” 

“And if you look at what’s happened, we’ve been known for price forever, but we’re increasingly known for convenience,” he said. 

“So whether the environment is inflationary or deflationary, whether customers have more money or less money, if we’re doing a good job on the items and prices and the service we provide, saving them money with pickup and delivery, for example, we can continue to grow share.” McMillon said.

Walmart President John Furner added that “in the delivery business where we are stronger with higher-income consumers, that’s where we’ve seen a lot of growth.”

Walmart posted adjusted earnings of 62 cents a share, up 26.5% from a year earlier and firmly ahead of the Wall Street consensus analyst forecast of 52 cents a share.

Revenue rose 6% to $161.5 billion and beat analysts’ estimate of $159.5 billion.

U.S. same-store sales were up 3.8%, ahead of Wall Street’s 3.2% forecast, while U.S. online sales rose 22% from a year earlier and now comprise a record 20% of all domestic revenue.

TheStreet Pro’s Ed Ponsi said the online-sales gain is perhaps “the brightest spot in the report.”

“That’s huge because Walmart has faced challenges with growth in the online space for years,” he said. “In the e-commerce space, Walmart trails far behind the world’s biggest online retailer, Amazon  (AMZN) .”

High-end customers notwithstanding, lower-income consumers still have a place in their hearts for Walmart.

“Walmart had an excellent quarter,” TheStreet Pro’s Stephen Guilfoyle wrote on May 16. “They are still champion to struggling consumers, and there is a good chance that the conditions that require such a champion will not only continue on but could exacerbate going forward.”

He added that Walmart “is going to have to both beef up its cash position and pay off much of its short-term debt without adding too much to its long-term debt through refinancing.”

Analyst: Walmart evolving to ‘tech-driven player’

“Otherwise, it is clear that Walmart is running a tight ship,” Guilfoyle said.

Walmart’s earnings report sparked a number of analysts to adjust their share-price targets.

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Bank of America Securities analysts reiterated their buy rating on Walmart and increased their price target to $75 from $67.

“WMT continues to see momentum across all income cohorts (incl. lower) as its strong value offering (and high digital convenience) resonates, supporting grocery and general merchandise share gains,” the analysts said in a research note.

They said Walmart’s “investments in wages, supply chain/automation and sales mix initiatives further support upside potential as strong top line momentum continues.”

BMO Capital analyst Kelly Bania raised the investment firm’s price target on Walmart to $75 from $65 and affirmed an outperform rating on the shares. 

The company’s first-quarter results reflected a “strong beat” and gross-margin expansion above expectations across all three of its business segments, the analyst said.

Walmart commentary and disclosures — including improving e-commerce losses, strong gross margins and price positioning — provided further evidence that momentum may continue, Bania said. She added that investors should give the retailer credit for creating a “significant moat” thanks to its omnichannel investments and high-margin initiatives.

Deutsche Bank analysts, who have a buy rating and a $71 price target on Walmart shares, said the company “is evolving from a dominant retailer to a more versatile and tech-driven player, enabled by a strategic push into areas like digital advertising, marketplace, fulfillment, and data analytics.”

“Its multiple should continue to benefit from this transformation, particularly as the retailer generates consistent enterprisewide margin expansion,” the investment firm said.

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