Walmart: Underpromise Now, Overdeliver Later? Wall Street Thinks New CEO’s Cautious Forecast Could Be A Setup For Surprise Beat

Wall Street noted that the “poster child” of an old economy, Walmart, will deliver an upside to the guidance issued on Thursday.

• Brian Mulberry, Senior Client Portfolio Manager at Zacks Investment Management, noted that the markets are concerned that the U.S. consumer is showing signs of weakness, and spending could begin to soften.
• Nancy Tengler, portfolio manager of the TGLR ETF, said that Walmart's valuation is pretty healthy and “for our investing strategy it's been our poster child of an old economy company that's pivoting to new technologies.”
• CEO John Furner said that across the customer base, spending remains resilient, and in the U.S., customers are becoming choosier with their spending.

Walmart Inc. on Thursday provided annual forecasts that came in softer than expected, with the stock closing down 1.4%, but Wall Street said the retail behemoth is likely to surprise investors as they set a low bar entering this year.

The retailer, whose forecasts and results are an indication of the overall American economy, posted strong holiday-quarter results, showcasing strength in consumer demand for staples and groceries, but executives noted that the public remained cautious about spending.

“Across our customer base, spending continues to be resilient. In the U.S., we see the customer as choiceful in their spending. Again, this quarter, the majority of our share gains came from households making more than $100,000,” new CEO John Furner said during a post-earnings call.

“For households earning below $50,000, we continue to see that wallets are stretched, and in some cases, people are managing spending paycheck to paycheck,” Furner said.

Wall Street Views On Walmart’s Guidance

“WMT beat expectations on the quarter and full year, but markets are grabbing conservative guidance. What management actually said was that things haven't changed, rather there is a continuation of uncertain and choppy macro,” Jamie Meyers, senior analyst at Laffer Tengler Investments, said. “Their stated goal is to outperform guidance -- a feat they generally accomplish. If WMT can give customers what they want, when they want, how they want, it will continue to be successful.”

Brian Mulberry, Senior Client Portfolio Manager at Zacks Investment Management, noted that the concern here for the markets is that the U.S. consumer is showing signs of weakness, and spending could begin to soften. “Walmart has done this in the past as an experienced management team sets the bar a little lower for various reasons, making the next quarter’s earnings a little easier to surprise to the upside,” he said.

However, Head of Equity and Portfolio Manager at Aptus Capital Advisors, David Wagner, said the focus has been on guidance this quarter, given current valuation levels, which came in a bit light, but the market is shaking it off so far.

“Basically, there's a debate on whether market participants believe that the guide is conservative or not - we're in the belief that it is, given the new CEO at the helm, and it appears that the market agrees with this narrative,” Wagner said.

Walmart: A Poster Child

Nancy Tengler, portfolio manager of the TGLR ETF, said that Walmart's valuation is pretty healthy and “for our investing strategy it's been our poster child of an old economy company that's pivoting to new technologies.”

“We've owned it for 10 years. We're up about 670% on the stock. We sold some yesterday, and I don't usually do that ahead of earnings, but we did because it got to be an outsized position. We also think the good news, in some cases, is priced in,” Tengler said.

How Are Stocktwits Users Reacting?

Retail sentiment on Walmart was in the ‘extremely bullish’ territory compared to ‘bullish’ a day ago, with message volumes at ‘extremely high’ levels, according to data from Stocktwits.

A user on Stocktwits noted that the stock could fall to $110 and that there was a nice swing to profits.

Shares of Walmart have gained nearly 32% in the last 12 months.

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