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After two negative guidance revisions, Walmart’s estimates appear to be inflecting positively. The consensus EPS estimates for Q3 reflect a more significant deceleration in sales trends and headwinds from markdowns than our model.
Walmart is the fifth largest holding in the Consumer Staples XLP ETF, as such many analysts must consciously decide whether to be underweight or overweight. We think now is the time to be overweight Walmart.
Walmart’s competitive dynamics have implications for numerous competitors as well as the supply chain. As the largest food retailer, its promotional intensity can set the pace for the industry. As the largest customer for numerous CPG companies, its pricing plans can have an outsized influence on margin trends.
Beyond Walmart’s own profit forecasts and investment prospects our Black Book focused on the following:
- In-stock levels for food retailers and the implications for price elasticity.
- Is there a change coming for store label substitution?
- Pricing plans – passing on increases or pushing back on the manufacturers.
- Competitive pricing for food retailers.
- The profit impact from excess inventories, who is most at risk?
- Walmart is gaining share in food retail and driving traffic, who is losing?
- On the technology front, Walmart remains committed to future investments and could be a needed partner in the streaming wars.
Our investment themes:
