Walmart Stock Soars 7% On Earnings Beat: Should You Buy?

(MENAFN- ValueWalk) The largest U.S. retailer posted strong results in the second quarter and raised its fiscal year outlook.

Walmart (NYSE:WMT) stock jumped 7% on Thursday after the nation's largest retailer reported robust second quarter earnings that were better than anticipated.

Revenue surged 5% to $169.3 billion in the second quarter , which was ahead of estimates of $168.6 billion.

Net income was down 42% year-over-year to $4.5 billion, or 56 cents per share, but that incorporates a one-time gain of $3.9 billion in the same quarter a year ago. On an adjusted basis, earnings per share rose to 67 cents per share, up from 61 cents per share a year ago and better than the 65 cents per share estimates.

While some other retailers, like Home Depot (NYSE:HD) see trouble ahead, Walmart increased its earnings guidance for the second half of the year.

Walmart generated $115 billion in net sales in the U.S., a 4% year-over-year increase. Comparable store sales rose 4.2% in the quarter, while ecommerce sales grew 22%, led by store-fulfilled pickup and delivery.

Also, Walmart Connect, the company's media and advertising arm, grew advertising sales 30% due to an uptick in new advertisers. The store's mandate of providing value and convenience continues to resonate with customers, as it gained share across all income cohorts, primarily driven by upper-income households.

In addition, Walmart International made $30 billion in the quarter, up 7%, with eCommerce sales up 18% and advertising revenue up 23%. Operating income rose 16% year-over-year. Further, Sam's Club revenue increased 5% to $23 billion while its operating income jumped 12%.

“Each part of our business is growing - store and club sales are up, eCommerce is compounding as we layer on pickup and even faster growth in delivery as our speed improves,” Walmart President and CEO Doug McMillon said.“Our newer businesses like marketplace, advertising, and membership, are also contributing, diversifying our profits and reinforcing the resilience of our business model.”

Overall, inventory was 2% lower across the company, including 2.6% lower in the U.S. Further, ecommerce grew 21% company-wide and advertising revenue increased 26%. In addition, the gross profit margin increased 43 basis points to 24.4%.

Walmart stock was up about 7% in morning trading, due in large part to its updated outlook for the rest of the year. While other retailers , like Home Depot, lowered their guidance, Walmart boosted its earnings outlook to 3.75% to 4.75% growth, up from 3% to 4% growth. Further, it targeted adjusted operating income growth of 6.5% to 8%, up from 4% to 6%.

In addition, earnings per share was boosted to a range of $2.35 to $2.43 for the full year, up from the previous $2.23 to $2.37 EPS. The upper end of the new range is in line with analysts' expectations.

For Q3, Walmart sees net sales growth of 3.25% to 4.25%, operating income growth of 3% to 4.5%, and EPS of 51 cents to 52 cents. The latter is below analysts' estimates of 54 cents per share.

Walmart stock has had a great year, up 39% already, year-to-date. The company did not notice any slowdown in Q2 and is guardedly optimistic about the back half of the year.

As a discount retailer, Walmart typically does well in sluggish economic environments, and in recent quarters it has expanded its market share with higher income shoppers. It should be able to navigate any type of economic slowdown, if one occurs.

The stock is already up 39% so how much run does it have left? With a P/E of 29 and a forward P/E of 28, its valuation is a bit on the high side, but its price-to-sales ratio is low at 0.85.

Wall Street analysts only see modest gains, with a price target of $74.50, which is only slightly above its $73 per share price now.

Walmart is always a good long term stock to consider, but this might not be the perfect time to jump on board.

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