Wal-Mart Stores, Inc. (NYSE:WMT) will release its latest quarterly report today, but analysts are already weighing in on the retailer’s potential.
Wal-Mart in the News
The national retail corporation has seen increasing revenue over the past two consecutive quarters. Before the new numbers roll in, analysts are expecting to see earnings per share of $1.15 per share and revenue to beat last year’s total of $114.19 billion and reach $116.29 billion. But, while March experienced a strong rise in retail sales after the harsh winter, April did not experience the same kind of positive momentum. In fact, U.S. retail sales were almost completely flat at 0.1% last month. During their fourth quarter, Wal-Mart Stores, Inc. (NYSE:WMT) reported a 21% drop in profit due to increased competition from smaller grocery store chains. However, Wal-Mart might be able to report some positive news this quarter, now that they have closed some stores in Brazil and China, and scaled back operations in India.
An Analyst Perspective
Jeffries analyst Daniel Binder recently noted, “an improvement in the weather in April,” leading to the improvement of retail traffic trends. Binder maintained his BUY Wal-Mart Stores, Inc. (NYSE:WMT) rating and raised his price target from $87 to $92 saying, “WMT shares look attractively priced relative to consumer staples companies which are getting valuations in the mid to high teens. Nonetheless, we think that the market could respond favorably to a potential modification of the international unit growth profile, which we think could be coming at some point this year.” Binder has an average return of +0.3% on the stock based on 10 recommendations, helping him earn an overall overage return of +7.4% per recommendation and a 62% success rate of recommendations.
Daniel Binder’s Past Recommendations
Binder recently recommended Wal-Mart Stores, Inc. (NYSE:WMT) in February of this year, maintaining his BUY rating and $87.00 price target. On February 1, Doug McMillion took over as Wal-Mart CEO and Binder suggested that investors stay with the stock to see what happens with the company under new direction. Binder noted, “McMillion appears ready to get this business moving in the right direction.” When Binder made this recommendation Wal-Mart was trading at $72.20 and by the time this recommendation closed, the stock was trading at $79.14.
Binder has also recommended other retail companies such as The Home Depot, Inc. (NYSE:HD) and Best Buy Co Inc (NYSE:BBY), earning strong average returns.
In August of 2013, Binder reiterated his BUY Home Depot rating and $75.21 price target. Binder noted that “Home Depot’s sales rebounded as temperatures warmed up following cooler weather in the spring and early summer.” Binder added that, “the chain got an additional boost from the continued recovery of the housing market.” This recommendation helped Binder earn an average +5.2% average return on the stock.
Binder also has a strong history recommending Best Buy. In July of last year, Binder maintained his BUY rating and raised his price target from $31.00 to $35.00 before the release of Q2 results. Binder noted, “in many cases we think May and early June showed strength on pent-up demand for more seasonal business, but then decelerated in 2H June. We are making modest sales adjustments. Some retailers may benefit from a later quarter end and more back to school sales. Expecting HD and Lowe’s Companies, Inc. (NYSE:LOW) to look strongest. We think Kohl’s Corporation (NYSE:KSS) and Dollar Tree, Inc. (NASDAQ:DLTR) could get to high end of plan. Best Buy Co Inc (NYSE:BBY) still transitioning.” Even though Binder felt Best Buy was still in a transition period, this recommendation helped him earn an average return of +10.6% on the stock.
However, Binder does not have a perfect success rate, and has earned a few disappointing average returns,as well. In February of this year, Binder maintained his BUY rating on Lumber Liquidators Holdings Inc (NYSE:LL), but lowered his price target from $131.00 to $124.00. Binder made it clear that weather was not a factor in his recommendation, but did note, “With high short interest, we may have seen some short covering today as management did not lower full year 2014 guidance despite a soft start to the year as weather impedes business. Further, management reiterated its belief that there is further gross margin opportunity going forward as it improves sourcing, transportation and its mix of customers.” Unfortunately, the stock dropped dramatically after this recommendation, leaving Binder with a -1.8% average return on the stock.
Retail is still struggling to recover from a rough winter, but despite a low consumer turnout last month, Wal-Mart Stores, Inc. (NYSE:WMT) just might be able to report a positive quarter. Analysts and investors will just have to wait and see what happens when the report comes out today.
Jordan Faigen covers financial markets and the latest stock market news. She can be reached at [email protected]