Retail giant Wal-Mart Stores, Inc. (NYSE:WMT) announced its second quarter 2015 earnings results on August 18, ultimately disappointing investors and causing shares to fall 4.6%. Wal-Mart has been struggling in 2015 and has plummeted over 20% year-to-date as the company has had difficulty maintaining inventory control and employee relations.
While Wal-Mart’s sales throughout the quarter were better than the Street had expected, investors were disappointed by the company’s reduced guidance for full-fiscal 2016. Earnings per share guidance was reduced from a range of $4.70 – $5.05 to a range of $4.40 – $4.70.
Highlights from the report include earnings of $1.08 per share for the quarter, missing the Street’s estimate of $1.13 earnings per share. Wal-Mart blamed the earnings miss on currency exchange rates. On a positive note, the company posted $120.2 billion in revenue, beating the Street’s estimate of $119.78. Revenue would have been $124.5 billion if it wasn’t for currency fluctuations, according to Wal-Mart.
Wal-Mart President and CEO Doug McMillon said of the company’s Q2 earnings, “We’re pleased that the investments we’ve made are helping to improve our business. Even if it’s not as fast as we would like, the fundamentals of serving our customers are consistently improving, and it’s reflected in our comps and revenue growth. In this case, our desired changes require investments, which are pressuring earnings this year. We’re confident that our strategic plan will create robust sustainable growth for shareholder returns over time.”
Wal-Mart has been investing in e-commerce, four new fulfillment centers, and rasining wages for employees in an effort to improve customer service. While these initiatives are expected to provide long-term benefits for Wal-Mart, the company’s margins have narrowed in the short-term as a result.
Wal-Mart Global e-Commerce president Neil Ashe said the new fulfillment centers “are strategically located across geographies and will begin to serve our customers this holiday. They will be cornerstones of our fulfillment network going forward.” CEO McMillon added, “When all of our e-commerce fulfillment investments come online, we expect them to lower our distribution costs in the mid-term, starting in the fourth quarter and having a larger, positive impact next year.”
Despite being undervalued, Wal-Mart has been able to maintain a 2.9% dividend yield and a price-to-earnings ratio of 14.2, a factor that many investors are forgetting.
BMO Capital analyst Wayne Hood remains unsure of Wal-Mart despite the company’s initiatives to increase future sales. The analyst maintained an Underperform rating on the stock on August 19 and lowered his price target to $71.
Overall, Wayne Hood has an 81% success rate recommending stocks and a +18.3% average return per recommendation when measured over a one-year horizon and no benchmark. He has rated Wal-Mart 4 times since 2014, earning a 50% success rate recommending the company and a +7.6% average return per recommendation.
On the other hand, Credit Suisse analyst Michael Exstein reiterated an Outperform rating on Wal-Mart with a price target of $85 on August 19, noting that the company’s dividend should limit further downside. Additionally, the analyst commented, “The upside for Wal-Mart is significantly higher given emerging signs of a healthier low end consumer and more rational capital management.”
On average, Michael Exstein has a 63% success rate recommending stocks and a +10.2% average return per recommendation when measured over a one-year horizon and no benchmark. He has rated Wal-Mart 7 times since 2014, earning a 40% success rate recommending the stock and a +0.7% average return per recommendation.
Out of 10 analysts polled by TipRanks within the past 3 months, 2 analysts are bullish on Wal-Mart, 2 are bearish, and 6 are neutral. The average 12-month price target for Wal-Mart is $77.75, marking a 13.39% potential upside from where the stock last closed. On average, the all-analyst consensus for Wal-Mart is Hold.