New York: Walmart Inc.’s investor day topics are likely to include updates on the Flipkart acquisition, select guidance metrics, the retailer’s e-commerce, Fresh, and international strategies. In addition, the management will get a shot at easing investor concerns about wage pressures and Chinese tariffs at the 2018 Meeting for the Investment Community in Bentonville, Arkansas on Tuesday.
Shares of the retail behemoth have been on a recovery path for most of the year after falling more than 10% the day of the fourth-quarter earnings in February. Walmart has since pared losses to less than 4%, and will have another chance to bolster investor enthusiasm next week.
This year’s investor day should be positive, given Walmart’s solid results from the first half of the year and a favourable macro environment, according to one Walmart bull. Telsey Advisory Group analyst Joseph Feldman expects the retailer to provide clarity on key topics like wages, tariffs and its recent Flipkart acquisition, which is expected to post losses.
“We expect an update on the company’s exposure to China and the impact of the 10% tariff and expected jump to 25% in 2019,” Feldman wrote in a note. “We also anticipate a discussion of rising labour costs, especially in light of Amazon’s recent increase in its minimum hourly wages to $15, starting on November 1.”
“In our view, this asset should pay off over time as Indian e-commerce develops, although like most e-commerce companies, this should drag results in the near-term,” Feldman wrote. Walmart is rated an outperform at Telsey, with a price target of $107.
Other Wall Street analysts have mixed views.
Oliver Chen of Cowen sees Walmart focusing on its e-commerce growth and margin management during the investor presentation. “We forecast debates on trade-offs between share gains vs. profitability,” writes Chen in a note. Chen rates Walmart outperform with a $115 price target that matches the Street high. Walmart shares are trading at 20 times earnings versus their three-year average of 16.8 times, which implies investor day upside could be muted, Chen wrote.
According to Guggenheim’s Robert Drbul, “With the Walmart U.S. business on solid footing,” led by efforts in stores and e-commerce, “emphasis to be placed on the International strategy, namely Flipkart.”
Walmart’s US e-commerce strategy will probably include smaller bolt-on acquisitions, “with the aim of expanding category and consumer demographic reach.” Investors shouldn’t expect an update on loss figures in the US e-commerce business.
On the international front, Drbul expects Flipkart (and the India strategy) to get most of the attention, but he doesn’t expect updated financial guidance related to the deal “beyond what has already been provided.” Walmart is rated buy at Guggenheim, with a price target of $110.
Walmart was likely to update guidance after the closure of the Flipkart deal, says Consumer Edge Research’s David Schick . In May, Walmart initially called for deal dilution of $0.25 to $0.30 per share, assuming the deal closed in the second-half of the year.
Additional meeting topics likely will include the retailer’s “continued efforts and progress in fresh, updates on price investments, and continued architecture and capabilities of omni-channel.”
Walmart is expected to stand by its commitment to “everyday sharp pricing in stores and online” as Target Corp. focuses on basics and as the market faces more inflation.
Schick believes Walmart’s efforts in fresh (adding back team lead positions into stores, partnering with vendors who move fresh product through supply chain more quickly) are bearing fruit, with Fresh seeing share gains vs. traditional grocers. Regarding omni-channel capabilities, investors may ask about progress toward e-commerce sales growth guidance of 40% year-over-year this year, as well as e-commerce growth around the holiday season.
According to BMO Capital Markets’ Kelly Bania, key points of the meeting are likely to centre on an initial FY 2020 (year ended January 2020) forecast and capex plan; US e-commerce losses; US grocery; wages; tariffs; freight & transportation costs; pharmacy; WMT International;and Sam’s Club.
Bania believes Walmart will reiterate its current year forecast, albeit reflecting the expected negative earnings impact from Flipkart. Investors seem “overwhelmingly” skeptical that this year will be the peak year for US e-commerce losses. “Any commentary that US e-commerce losses are, in fact, expected to stabilize/possibly improve could be a positive for the stock,” Bania believes.
BMO rates the shares outperform, with a price target of $110.
Street ratings on the world’s largest retailer, according to Bloomberg data, include 15 buys and 22 holds. There is not one sell rating on the stock. The average 12-month price target is $105, which implies 11 percent upside from the current level. Walmart will report third quarter earnings next month.