Walmart Stock Returns to All-Time Highs: Should We Expect Further Growth?
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Shares of the largest US retailer, Walmart Inc. (NYSE: WMT), reached an all-time high on 31 August 2023, setting a new price record at 162.99 USD. Will the trend towards further growth in Walmart’s stock value persist and what is happening in the company now? Find out more in our new article.
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Walmart’s Q2 FY 2024 earnings report
Walmart Inc., which operates about 10,500 stores in 19 countries and employs approximately 2.1 million people, released its earnings report for Q2 FY 2024 on 17 August. Revenue for May to July increased by 5.7% from the corresponding period of last year, reaching 161.6 billion USD. Net profit rose by 53.3% to 7.9 billion USD or 2.93 USD per share.
Walmart US sales grew by 5.4%, reaching 110.9 billion USD, and Walmart International sales were up 13.3%, rising to 27.6 billion USD, while Sam’s Club revenue decreased by 0.3%, down to 21.8 billion USD.
The company attributes an upturn in sales to increased demand for food products and essential goods and to the development of e-commerce, the revenue of which added 24%. Walmart Inc. management expects full fiscal year 2024 revenue to increase by 4-4.5% with the adjusted EPS reaching 6.36-6.46 USD.
Walmart announces pay cuts
If Walmart Inc. needs to increase revenue, it’s sufficient to boost turnover; and it can achieve an increase in net profit by reducing costs. Investors typically favour cost-cutting measures as they enable the company to increase dividend payouts, even if there is no growth in earnings, or to invest money in stock buybacks.
On 29 August, Reuters reported about Walmart's cost-cutting measures related to pharmacist salaries. The management has asked some of its 16,000 pharmacists to voluntarily accept pay cuts. Additionally, store managers have been directed to offer lower base salaries when hiring pharmacists.
How inflation and the Fed may affect Walmart’s returns
Inflation motivates people to spend or invest money quickly as the value of funds decreases over time. Retailers, including Walmart Inc., can benefit from this situation, as both producers and consumers come together through their stores.
Based on August 2023 data, inflation has declined to 3.2% over a year, a notable drop from 9.1%. This is likely to bring confidence to consumers, potentially prompting them to shift from spending to making savings over time. Such a shift in consumer behaviour may have a negative impact on retail business. Therefore, Walmart Inc.’s decision to cut costs seems reasonable. Additionally, the actions of the Federal Reserve System (Fed) have had an impact on consumers. The US regulator raised the discount rate in an effort to curb inflation, which made loans more expensive and increased returns on deposits.
Over the last ten years, banks kept minimal deposit yields as the discount rate was 0.25% for most of this period. However, in 2023, banks did not hasten to increase deposit returns for clients, even as they hiked loan rates in alignment with the Fed. This difference between loan and deposit rates led to a surge in banks' interest income.
However, as reported by the Financial Times, in July 2023, large clients started to demand higher deposit rates from financial institutions. This may potentially lead to a situation where consumers reduce their spending and seek to deposit their funds instead.
The Federal Reserve’s efforts to combat inflation have begun impacting the employment market. Unemployment data released on 1 September 2023 showed an increase to 3.7%, up from 3.5%, while the growth rate of average hourly earnings slowed to 0.2%, down from 0.4%. This situation may significantly hinder the growth of Walmart Inc.’s income in the coming months.
Walmart stock analysis
Walmart Inc. stock has been trading in an ascending channel since June 2022 and is nearing its upper boundary, which signals a potential correction in the form of a price decline. Since July 2023, divergence started to form on the MACD indicator, also indicating a potential drop in the quotes. Considering this information, the price may reach the upper channel boundary at 165-168 USD amid the recent good news, and could potentially be followed by a correction. The support level is located at 153 USD.
Summary
Technical analysis points to the existing potential for growth in Walmart Inc.'s stock value. However, this upward trend may be short-lived and could be followed by a correction.
Walmart Inc.'s management forecasts suggest that revenue will continue to increase, potentially pushing up the stock price. However, a decline in the corporation’s quotes is influenced by higher deposit returns, potentially leading to reduced consumer spending. Additionally, rising unemployment and decreased average hourly earnings in the country may also have a negative impact on the US retailer’s revenue.
Considering these factors, Walmart Inc. stock is presumed to have the potential to reach the upper boundary of the channel at 165-168 USD, following which the price is highly likely to drop.
